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Caribbean Islands Table of Contents

Caribbean Islands

Banking and Finance

In 1987 Grenada, as a member of the Organisation of Eastern Caribbean States (OECS--see Glossary), was a member of the Eastern Caribbean Central Bank (ECCB), which was headquartered in St. Christopher and Nevis. It was bound by the ECCB's general guidelines on money supply and bank regulation and used the Eastern Caribbean dollar, which was pegged to the United States dollar at a constant exchange rate of EC$2.70 equals US$1.00. This relationship had some unusual effects on Grenada's international transactions. Because Grenada's exports were sold to numerous nations, the strength of the United States dollar in relation to other foreign currencies affected the ease with which Grenadian exports were sold.

In the case of a strengthening dollar, the Eastern Caribbean dollar would also appreciate with respect to other world currencies. This would cause Grenadian exports to become more expensive in the world market, while imports would become less expensive and more competitive with domestically produced goods. The overall effect would be to reduce Grenada's terms of trade, negatively affecting its balance of payments position. The reverse situation would have the opposite effect, strengthening Grenadian exports abroad, which would discourage the purchase of imports and improve overall terms of trade and the balance of payments. This situation occurred in 1987 as a result of the depreciation of the United States dollar in world currency markets.

The financial needs of Grenada were served by numerous public and private institutions below the central bank level. In 1985 the commercial banking system included four financial institutions, two of which were controlled by the government. The system was a holdover from the PRG, which chose to absorb all but two commercial banks into the public sector. The Blaize government slowly returned financial intermediation (see Glossary) to the private sector and intended to solicit proposals in 1987 for the sale of the remaining two publicly controlled banks.

Credit was extended for development projects through the Caribbean Financial Services Corporation, which provided long-term funds to new businesses through AID, the Grenada Development Bank, and the Grenada Cooperative Bank. Foreign investors provided much of their own funds for capital-intensive investment. The government planned to establish a merchant bank in 1987 to facilitate lending to new small business ventures.

Data as of November 1987