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
policy are 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 Bank to 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.
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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 can transact
foreign monies and/or operate a foreign
currency account with any of the commercial
banks providing that the services are
offered. However, the exchange rates are
determined by the ECCB.
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REPATRIATION OF FUNDS
The repatriation of capital, dividends,
interest and other distributions and
gains can be freely transacted; subject
to paying of all applicable taxes, both
foreign and domestic investors may freely,
unconditionally and without hindrance:
• repatriate dividends, earnings and
capital from their investment
enterprises;
• remit the proceeds in the event of sale
or liquidation of an enterprise or
interest attributable to an investment;
• pay interest on international loans;
• pay for imports;
• pay fees for trademarks, royalties, and
management fees and other fees;
• pay licensing fees for franchising
agreements. There are circumstances
however in which the right to repatriate
or to distribute profits, dividends, and
capital may be restricted.
Government may prevent a transfer of funds
through the equitable, nondiscriminatory
and good faith application of Acts relating to:
• bankruptcy, insolvency, or protection of
the rights of stockholders or creditors; or
• if criminal or penal offences against
the Investor or Investment Enterprise
are outstanding before the courts; or
to ensure compliance with orders or
• judgements in legal proceedings; and
• when there is a balance of payments
emergency as defined and accepted by
the IMF. The average period for
remitting all kinds of investment returns
is 24 hours.
BG