A Currency Union for the Caribbean

IMF Working Papers, February 1, 2003

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A Currency Union for the Caribbean

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Bibliographic details

• Authors: Rupert D Worrell
• Published: February 1, 2003
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451845372.001

Summary

• Title: A Currency Union for the Caribbean
• Author: Rupert D Worrell
• Date: February 1, 2003
• Core summary:
  • Exchange rate depreciation in Caribbean Economic Community countries is inflationary.
  • Changes in the relative prices of tradables may affect exports, tourism, and imports.
  • Nominal exchange rate changes have no predictable effect on relative tradable prices.
  • Under these circumstances, economic literature indicates that a fixed exchange rate regime is optimal.
  • Caribbean countries with (quasi-) currency boards have been successful in maintaining durable exchange rate pegs.
  • Commitment to a currency board is a potentially vital step in achieving a currency union for the Caribbean.

Findings and analysis

• Empirical observations:
  • Exchange rate depreciation → inflationary effects in Caribbean Economic Community countries.
  • Relative price changes of tradables can influence exports, tourism, and imports.
  • Nominal exchange rate adjustments do not reliably alter relative tradable prices.
• Economic literature implication:
  • A fixed exchange rate regime is identified as optimal given the observed dynamics between exchange rates, relative tradable prices, and inflation.
• Institutional evidence:
  • (Quasi-) currency boards in Caribbean countries have succeeded in maintaining durable pegs.

Policy implications and recommendations

• Institutional commitment:
  • Adopting and credibly committing to a currency board is recommended as a key step toward forming a currency union in the Caribbean.
• Exchange rate regime guidance:
  • Given the inflationary impact of depreciation and the ineffectiveness of nominal adjustments on relative prices, fixed exchange rate regimes are favored.

Publication and metadata

• Publication type: IMF Working Papers
• Series: Working Paper No. 2003/035
• Issue: 035
• Volume: 2003
• Pages: 35
• DOI: https://doi.org/10.5089/9781451845372.001
• Stock No: WPIEA0352003
• ISBN: 9781451845372
• ISSN: 1018-5941
• Subjects: Currencies, Economic integration, Exchange rate adjustments, Exchange rates, Foreign exchange, Monetary unions, Money
• Keywords: board regime, board rule, board strategy, Caribbean, common currency, Currencies, currency, Currency Board, currency board rule, currency risk, current account, dollar, Dollarization, exchange rate, Exchange rate adjustments, exchange rate change, exchange rate crisis, Exchange rates, Global, Monetary unions, quasi-currency board, quasi-currency board rules, single market, WP

IMF Working Paper: "A Currency Union for the Caribbean" by Rupert D Worrell (February 1, 2003).

Content in this bundle

• A Currency Union for the Caribbean - WP/03/35
  • A Currency Union for the Caribbean - WP/03/35 (Markdown version)
  • A Currency Union for the Caribbean - WP/03/35 (PDF)