2019-2020 Annual Report and Statement of Accounts

MONETARY STABILITY

Maintain Sufficient Foreign Reserves to Support the EC Dollar As at 31 March 2020, foreign reserves totalled EC$5.0 billion. That value was deemed adequate for monetary and exchange rate stability. The Bank engaged in analytical and relevant research on matters relating to a cashless society, the digital currency, the ECCB’s reserves and the EC currency. A paper titled: The Optimal Level of Reserves in the ECCU , was presented at the 51 st Annual Monetary Studies Conference in November 2019. Additionally, during the period under review, the Bank prepared a paper on Developing a Currency Forecasting Framework for the ECCB . Reserve Management The financial year saw rising yields on shorter-dated debt issued by the United States of America (USA) amid continued increases in the Federal Funds Target Rate. The Federal Reserve continued its campaign of normalising US monetary policy by raising the policy rate three times during the year. Notwithstanding the increase in interest rates, the ECCB continued to achieve its foreign reserve investment objectives of preservation of capital and meeting liquidity needs. Yields on debt issued by the USA declined dramatically during the last quarter of the financial year due to emergency monetary policy actions by the Federal Reserve to avoid a financial crisis exacerbating the looming economic slowdown due to the COVID-19 pandemic. The result was a significant increase in the value of the foreign reserve portfolio due to capital appreciation as bond prices moved inversely to yields. Review and Adoption of a Revised Reserve Management Framework The Bank continued the implementation of the revised foreign reserve management framework as articulated in its Foreign Reserve Management Investment Policy. The key achievements attained during the financial year 2019/2020 included the following: ƒ Implementation of a third foreign reserve tranche for seeking relatively higher investment returns. The newly created tranche allows for an allocation to US Agency Mortgage Backed Securities, and utilises a relatively longer investment horizon; ƒ Execution of the approved foreign reserve money manager framework. Consequently, the Bank engaged in a selection process for asset managers; and ƒ Establishment of a Risk and Analytics Unit (RAU) to support the reserve management operations of the ECCB. The functions of the RAU include: 1. Leading the development of the reserves management investment policy and investment guidelines; 2. Conducting analytical studies, including generation and review of the Strategic Asset Allocation (SAA); 3. Measuring and monitoring market and credit risks in the portfolio, and compliance with investment guidelines; and 4. Evaluating the performance of the portfolios and providing periodic reporting to management, the Reserves Management Committee, and the Board on these activities.

Chart 1 - Foreign Reserves

Chart 2 - Growth Rate of Monetary Liabilities (M2) and Private Sector Credit

| EASTERN CARIBBEAN CENTRAL BANK ANNUAL REPORT 2019-2020 2