BANKING
T
he highest form of monetary authority lies with the Eastern
Caribbean Central Bank (ECCB), who exercise wide control over the
management of Grenada’s and other Eastern Caribbean Countries
monetary system. ECCB act as banker both to Government and to the
commercial banks and a lender of last resort to the financial system as
a whole. The conduct of monetary policy is one of the most important
functions performed by the ECCB on behalf of Government. Where the
financial markets are large and diversified; a Central bank is able to control
the cost and availability of funds through the manipulation of discount rates
and open market operations.
In Grenada, there are no diversified financial markets; hence the
instruments of financial policy are therefore more directly related to the
creation of means of production and to the development of the physical
and financial infrastructure. Some of the instruments used by the Central
Bank to regulate money and credit are as follows:
DISCOUNT POLICY
OPEN MARKET POLICY EXCHANGE CONTROL
This is the sale or purchase of government securities by the ECCB in an
attempt to influence the money supply. A sale of such securities to a bank
or individual triggers a transfer of funds from the commercial banks to the
ECCB thereby reducing the quantum of resources available to the economy. Due to liberalizations by the Eastern Caribbean Central Bank (ECCB) there
are no exchange controls on foreign currencies and securities. As a result,
an individual of either local or foreign origin can transact foreign monies
and/or operate a foreign currency account with any of the commercial
banks providing that the services are offered. However, the exchange rates
are determined by the ECCB.
RESERVE REQUIREMENTS
The ECCB is authorized to prescribe minimum reserve requirements for
banks and other financial institutions. This provision obliges financial
institutions to keep some portion of their deposits in cash with the ECCB.
SELECTIVE CREDIT CONTROL
The ECCB has the authority to determine the permissible purposes,
aggregate ceilings and maximum interest chargeable in respect of loans and
overdrafts. The Central Bank in consultation with Government determines
priority areas for credit distribution and direct lending to those sectors.
This is the power of the ECCB to change interest rates and occurs in
situations where commercial banks have exhausted their liquidity and
cannot extend further credit. When this occurs, a request is made to the
ECCB to buy credit instruments such as treasury bills and to provide loan
advances on such instruments. The Central Bank may exercise close
control over domestic credit or interest rates through the manipulation of
the discount rate.
REPATRIATION OF FUNDS
The repatriation of capital, dividends, interest and other distributions and
gains can be freely transacted; subject to paying of all applicable taxes,
both foreign and domestic investors may freely, unconditionally and
without hindrance.
• repatriate dividends, earnings and capital from their investment enterprises.
• remit the proceeds in the event of sale or liquidation of an enterprise
or interest attributable to an investment.
• pay interest on international loans;
• pay for imports;
• pay fees for trademarks, royalties, and management fees and other fees;
• pay licensing fees for franchising agreements.
There are circumstances however in which the right to repatriate or to
distribute profits, dividends, and capital may be restricted.
Government may prevent a transfer of funds through the equitable,
nondiscriminatory and good faith application of Acts relating to:
• bankruptcy, insolvency, or protection of the rights of stockholders or
creditors; or
• if criminal or penal offences against the Investor or Investment
Enterprise are outstanding before the courts; or to ensure compliance
with orders or judgements in legal proceedings; and when there is a
balance of payments emergency as defined and accepted by the IMF.
The average period for remitting all kinds of investment returns is 24 hours.
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