No regret!

BASSETERRE, St Kitts (CMC):

Governor of the Eastern Caribbean Central Bank (ECCB), Sir Dwight Venner, has defended the decision of Eastern Caribbean Currency Union (ECCU) members to peg their local currency to the United States (US) dollar more than three decades ago.

The Eastern Caribbean (EC) dollar has been pegged to the US dollar for the past 34 years at a rate of EC$2.70 to US$1.00.

In an interview marking the 27th anniversary of the ECCB, Sir Dwight said maintaining the stability of the currency in Antigua and Barbuda, Dominica, Grenada, St Lucia, St Vincent and the Grenadines, Montserrat, St Kitts and Nevis and Anguilla had been a tremendous achievement for the subregion.

"The credibility of the currency has meant that we attract foreign investment because people have felt they can bring money in because they can take it out at the same value," he said, adding that domestic savers also know "the value of their currency is stable and, therefore, they are not tempted to export capital."

Sir Dwight said another positive aspect of pegging the EC dollar to the US currency is the fact that the islands have all pooled their foreign reserves "and the pool has been kept at very high levels".

"So, we have averaged around 100 per cent backing of the currency. The legal limit is 60 and the operational level is 80 per cent, and we have been way above those and so, people know that we have foreign exchange backing so that we can defend the currency."

Stable and well-cushioned

The central bank governor said he was confident that the subregion would maintain the exchange rate and that an alternative arrangement to what currently exists "would not suit us the way we have evolved as a currency union.

"Other islands in the region have departed from fixed pegs and have taken a very long time to get back into equilibrium. It would not be good for us if we came off that path and so, a major policy objective, both for the bank as the regional monetary authority and the individual countries, is to really ensure that that peg remains as it is," Sir Dwight argued.

He said the stability of the currency was among many policy initiatives taken by the subregion to deal with the current global economic and financial crisis.

"Could you imagine, in the middle of all this, we had a currency that was declining in value? That would just compound the problem. So, we are well-cushioned with the backing of the currency ... I am reasonably confident that we can maintain the peg," he assured.