sustainability. Directors noted that the quasi currency board arrangement continues to serve the ECCU well by fostering price stability, and that international reserve levels exceed most of the Fund’s reserve adequacy benchmarks. To improve international competitiveness, they encouraged the authorities to pursue structural reforms that reduce the costs of doing business. In this context, Directors commended the initiatives to reduce energy costs—particularly investments in renewable energy sources—and recommended policies to moderate labor costs, improve resilience to
sustaining growth and building resilience, through enhancing competitiveness and economic diversification. Directors considered that the quasi-currency board arrangement continues to serve the ECCU well by fostering price stability, despite recent price shocks arising from external factors. They observed that the level of the real exchange rate appears to be in line with fundamentals, but noted that there would be challenges in maintaining external competitiveness in the period ahead. While the real effective exchange rate has been depreciating, reflecting the ongoing
countries. By law, the ECCB is required to maintain international reserves equivalent to 60 percent of the central bank’s demand liabilities. Operationally, the ECCB is committed to maintaining a reserve cover greater than or equal to 80 percent of demand liabilities, and in practice the reserves have been close to 100 percent of demand liabilities, occasionally exceeding that figure. The reserve cover rule was brought over from the Eastern Caribbean Currency Authority which preceded the establishment of the ECCB in 1983. The reserve cover rule had served the ECCU well
continues to serve the ECCU well . The exchange rate peg has underpinned a prolonged period of price stability that has contributed importantly to economic development in the region. Available indicators suggest that the currency remains competitive, reserve coverage has been adequate, and the significant new private investment underway in the tourism sector points to continuing strong prospects in the key sector of the economy. 46. Nonetheless, the region’s exchange rate peg and vulnerability to natural disasters and other shocks makes it even more critical to place