Banking
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 policyare 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 Bankto regulate money and credit are as follows: Discount Policy 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. Open Market Policy 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.
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. Exchange Control 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
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