Eastern Caribbean Currency Union Faces Similar Challenges to Euro Area

Global crisis exposes common problems in regional currency unions

Despite drawbacks, benefits abound from closer integration, shared resources

More involvement from private sector vital to reforms, sustained growth

The ECCU is the smallest and least known of the world’s four currency unions (the other two are in Africa), comprising only eight countries that have a combined population of less than one million people.

In an interview with IMF Survey, Alfred Schipke, formerly of the IMF’s Western Hemisphere Department and now with the IMF’s Asia and Pacific Department, points out that, while the crisis exposed significant weaknesses in the ECCU, it also provides a unique opportunity to move forward with needed reforms to strengthen the union.

Schipke recently co-edited a new book on the ECCU, The Eastern Caribbean Economic and Currency Union: Macroeconomics and Financial Systems, which was launched today at IMF Headquarters in Washington, DC. IMF Deputy Managing Director Min Zhu, in his opening remarks, reflected on the challenges facing small island economies, particularly with loss of market share in the tourism industry, the mainstay of the economy in most of the island states. He said that the IMF and its partners can do a better job in helping the region to further push macroeconomic, as well as structural, reforms, and noted that the new book would help in providing a framework for developing solutions to the ECCU’s financial sector problems and stimulating economic growth.

IMF Survey: What are the benefits of this currency arrangement for member states in the Eastern Caribbean?

Schipke: It is important to highlight that the countries have many similarities—they speak the same language and have the same history.

In terms of the benefits, the small size of these countries means that the currency arrangement allows them to take advantage of scale economies. It also allows them to diversify risk. This means that if one country gets hit by an external shock or natural disaster, the other countries can pool resources and deal with the shock more effectively.

Again, because of their size, these islands can provide, at the regional level, more cost-effective public services. So that is a major benefit. What also matters a great deal is when the union speaks with one voice the countries can be better represented at the global level.

IMF Survey: What were some of the weaknesses exposed by the 2008–2009 global crisis?

Schipke:...