The Eastern Caribbean States of Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia, and St Vincent and the Grenadines constitute a monetary union, termed the Eastern Caribbean Currency Union (ECCU). These eight countries share a common central bank and a common currency.
The genesis of the capital market development programme in the currency union can be traced back to the early 1990’s, when the Monetary Council of the Eastern Caribbean Central Bank (ECCB) mandated the Bank to proceed with the activation of Article 4(3) of the Agreement, which states that one of the purposes of the Bank is “to promote credit and exchange conditions and a sound financial structure conducive to the balanced growth and development of the economies of the territories of the participating Governments”. This was interpreted to mean, in practical terms, the development of money and capital markets. Accordingly, the latter part of the 1990’s heralded the onset of a new era of financial sector development in the region.
Despite the existence of a currency union with a common currency and a common central bank, as well as the rudimentary issuance of shares by public firms and T-bills and bonds by ECCB Member Governments, the financial system was fragmented, with eight separate markets. This, along with a high degree of fractionalisation in these markets, was identified as a constraint to the development of the region.
The financial sector, comprising financial systems, markets and institutions, is an important element in economic development. The financial sector mobilises savings and allocates credit across space and time. It provides not only payment services, but also more importantly products that enable firms and households to cope with economic uncertainties by hedging, pooling, sharing and pricing risks. An efficient financial sector reduces the costs and risks of producing and trading goods and services, and thus makes an important contribution to raising standards of living, which has an indirect impact on economic development.
Money and capital markets form a significant part of the financial sector; their underdevelopment limits risk–pooling and risk sharing opportunities for households and firms. Within the ECCB region the underdevelopment of money and capital markets has made the economies more vulnerable to financial crises.
In an effort to address this, the ECCB sought to develop and integrate the ECCU money and capital markets into a single financial space. The Bank began the creation of both markets and institutions to achieve this goal.
Arising out of a series of consultative meetings, held through the Currency Union, the ECCB identified a number of initiatives to be established at the regional level. These included:
- The Eastern Caribbean Home Mortgage Bank (ECHMB);
- The Eastern Caribbean Securities Market (ECSM);
- The Regional Government Securities Market (RGSM); and
- The Eastern Caribbean Institute of Banking and Financial Services (ECIB)