The genesis of the capital market development program 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 fractionalization 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 mobilizes 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 has sought to develop and integrate the ECCU money and capital markets into a single financial space. The Bank began by the creation of both markets and institutions to achieve this goal. A special unit was established to carry out this mandate, which after a number of changes has now become the Financial and Enterprise Development Department.