ECCB Communications Workshop for ECCU Media Practitioners

Eastern Caribbean Central Bank

Limitations of Monetary Policy in the ECCU • Entering into the peg has allowed the region to maintain a stable and predictable currency, which minimises the uncertainty associated with rapidly fluctuating exchange rates. Additionally, being pegged to the US dollar also serves to keep inflation rates predictable, as they move broadly with US inflation. Predictable inflation rates strengthens business confidence and facilitates economic growth. • By virtue of the monetary anchor to the US dollar, which is influenced by US monetary policy as well as other external factors including the demand for the currency of the US, the region’s monetary policy is greatly influenced by developments in US monetary policy as transmitted through fluctuations in the US dollar exchange rate (currency competitiveness) and interest rates (cost of capital).

• The inability to simultaneously opt for an open capital account, a fixed exchange rate regime, and monetary autonomy is a central postulate in international macroeconomics known as the “impossible trinity ”. ( IMF Working Paper ‘Monetary Policy Transmission in the Eastern Caribbean Currency Union) 3/30/2026 Transforming The ECCU Together 13