ECCB 2017-2018 Annual Report and Statement of Accounts

100 ECCB ANNUAL REPORT 2017/2018 Eastern Caribbean Central Bank Notes to the Financial Statements March 31, 2018 (expressed in Eastern Caribbean dollars)

EASTERN CARIBBEAN CENTRAL BANK NOTES TO THE FINANCIAL STATEMENTS

(expressed in Eastern Caribbean dollars)

March 31, 2018

2. Summary of significant accounting policies …continued u) Foreign reserve assets

Under Article 24 (2) of the Eastern Caribbean Central Bank Agreement Act 1983, the Bank is required to maintain a reserve of external assets not less than 60% of its notes and coins in circulation, and other demand liabilities. The percentage of foreign reserve assets to demand liabilities at March 31, 2018 was 97.34% (2017: 97.40%). v) Commemorative coins The nominal value of commemorative coins sold is excluded from the balance of ‘Notes and Coins in circulation’ while the net proceeds from sales are included in the statement of profit or loss. w) Taxation In accordance with Article 50 (8) (a) of the Eastern Caribbean Central Bank Agreement Act 1983, the Bank’s income is exempt from any form of taxation. In accordance with Section 5 sub-section (1) and (2) of the Eastern Caribbean Home Mortgage Bank (“ECHMB”) Agreement Act, 1994 the ECHMB is exempt from stamp duties and corporation tax. The Bank’s other associated company, the Eastern Caribbean Securities Exchange Limited (“ECSE”) has applied to the Ministry of Finance for the renewal of its tax exempt status. The previous 10-year exemption expired in May 2013. The request for a further extension is yet to be granted by the Ministry of Finance. a) Introduction and overview By its nature, the Bank’s activities are principally related to the use of financial instruments. The strategy for using these financial instruments is embedded in the mission of the Bank to maintain the stability of the Eastern Caribbean Dollar and the integrity of the banking system in order to facilitate the balanced growth and development of member states. The activities of the Bank require the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. In executing its duties as a central bank, there are significant inherent risks which the Bank faces, both at the macro and micro levels of its operations. These risks arise primarily through the Bank’s execution of its reserve management function, the provision of banking services to governments and commercial banks and from the broad areas of monetary policy, financial sector stability, management of the payment system and the daily operational tasks undertaken to support these functions. The Bank’s aim is therefore to achieve an appropriate balance between risk and the objectives of its reserve management function which are; i) preservation of capital, ii) meeting liquidity requirements and iii) realizing a satisfactory return. It also seeks to minimise potential adverse effects on the Bank’s financial performance.

3. Financial risk management

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