East Caribbean Dollar (1949-2023): From Private Bank Notes to Digital Currency

Gonta Semen Nikolaevich Student; Department of Theory of Law and State, History and Philosophy; Sochi State University 354000, Russia, Krasnodar Territory, Sochi, ul. Plastunskaya, 94 rudolf.diesel.bmw@gmail.com Other publications by this author

Potashova Irina Yurievna PhD in Economics Associate Professor, Department of Innovative Technologies in Economics and Management, Sochi State University 354000, Russia, Krasnodar Territory, Sochi, ul. Plastunskaya, 94 potashova@mail.ru

Introduction

The relevance of the study lies in the fact that today there is a tendency in the world to digitalize such a conservative form of the economy as cash. Currently, most countries of the world have already begun the process of gradual transition to the digital form of currency, as evidenced by the active development of the so-called "CBDC" (Digital currencies of central banks) and, in the case of particularly "progressive" countries, restrictions on the use of cash.

In this regard, in this article, the authors consider the history of the development of the Eastern Caribbean dollar, a currency whose history dates back to the middle of the 20th century and is circulated in 8 island microstates of the Caribbean region thanks to the monetary union, and its digital version can be considered one of the pioneers in the development of digital currencies of central banknotes (Central bank digital currency).  

The purpose of the study is to review and analyze the history of the development of the Eastern Caribbean dollar in the period from 1950 to 2023.

This work is an attempt by the authors to summarize the historical aspects of cash circulation in the island states of the Eastern Caribbean region, from the British colonies of the mid-20th century to the present day.

Materials and methods of research

In this work, the authors use general scientific research methods: classification method, analysis, synthesis, induction and deduction (abstract logical method). Additionally, the authors use special historical research methods: historical-genetic and narrative methods. 

The bibliographic database of the article consists of relevant works on the research topic. Statistical data are provided by the official currency regulator of the Eastern Caribbean Islands - East Caribbean Central Bank. Other materials are provided by the CBDC Tracker resource, as well as official UN and IMF data.

Discussion

Currently, there is practically no research in the domestic scientific community on the Eastern Caribbean Monetary Union and its single currency. Among these, only the works of G. L. Shagalov can be distinguished, which analyze the economic nature of the Caribbean monetary union ^[1], as well as its functioning and development in recent years ^[2].

However, in the English-speaking scientific community, much more research has been devoted to the Eastern Caribbean Monetary Union. Here we highlight the works of the following authors: Xiaodan Zhao and Yunbai Kim ^[3], Alberto Alesina and Robert Barro ^{[4, 5]}, Samuel Wendell and Lennox Andrews ^[6], Simons Walter and Raj Aggarwal ^[7], as well as an international group of authors ^[8].

Also, since this work examines the functioning of the digital currency of the Eastern Caribbean Monetary Union, it is worth noting the works devoted to this topic. In the Russian scientific community, only one work is devoted to this issue: T. V. Andreeva and A. B. Berker ^[9]. In turn, from English-language publications on the topic of the digital Caribbean dollar and digital currencies, we will highlight the works of the following authors: the report of the UN South American consultant Shiva Bissessar ^[10], the working report of the group of economists of the research department of the Central Bank of Trinidad and Tobago ^[11], the article by the economist of the Central Bank of Nigeria Peterson Ozili ^[12], the working report of Inutu Lukonga (IMF) ^[13], as well as the final report of the seminar on the digital currency of the Eastern Caribbean Central Bank ^[14].

The results of the study

The dollar of the British Caribbean Territories (1949-1965). The prehistory of the modern Eastern Caribbean dollar began long before the immediate introduction of this currency. The specifics of the region, as well as the colonial relations that have developed here, have largely influenced the formation and emergence of a common currency of island states in the eastern Caribbean region.

It is worth starting consideration with the dollar of the British Caribbean Territories (The British Caribbean Territories Dollar), since it can be called the first full-fledged currency of island states in this region. The circulation of the British West Indies dollar took place in the period from 1935 to 1965. At the first stage of its existence, the British West Indies dollar did not have its own physical appearance and represented the tickets of private banks (Barclays Bank, Royal Bank of Canada, Canadian Bank of Commerce) and the colonial government.

The geography of the distribution of the British West Indies dollar: Barbados, Trinidad and Tobago, Jamaica, British Guiana, British Windward Islands (Grenada, Saint Lucia, Saint Vincent and the Grenadines, Dominica) and British Leeward Islands (Saint Kitts and Nevis, Antigua and Barbuda, Virgin Islands, Anguilla, Montserrat).

In the second stage of its existence (1949-1965), the British West Indies dollar acquired its new physical form in the form of banknotes. In 1949, the British government formalized the system of dollars in the accounts of all the above-mentioned Territories by introducing a monetary unit at the existing conversion rate of 4.8 West Indian dollars per 1 pound sterling. 1 West Indian dollar contained 100 cents. Until 1955, the British West Indies dollar existed exclusively in banknote format and only later were coins issued ^[15].

In 1950, the first series of new banknotes were printed. The line of new banknotes consisted of 6 denominations ($1, $2, $5, $10, $20, $100). The style of the banknotes was restrained, the images were the same on all denominations and differed only in the color of the seal. Also on all banknotes there was a portrait of the head of state – King George VI of Great Britain.

It is also worth noting here that the direct printing of banknotes was carried out by the private company Bradbury, Wilkinson & Co. Ltd (New Malden)" in the UK (at that time, this company was actively engaged in the production of printed products for almost all colonies and dependent territories of Great Britain) ^[16]. 

The monetary authority for the new currency was the British Caribbean Monetary Authority ("British Caribbean Currency Board"). This monetary authority was created to maintain a stable exchange rate of the currency, representing the "classic" colonial "Currency Board" system, with such a monetary policy, the exchange rate of a certain country's currency is legislatively fixed to the anchor currency of another state (in this case, the British West Indies dollar was pegged to the British pound) ^[17].

In turn, the Monetary Council, as a body of monetary authorities, is "an institution issuing banknotes and coins, which, upon presentation on demand, are freely converted at a fixed exchange rate into a foreign currency or other external reserve asset" ^{[18, p. 276]}.

In the early 1960s, British Guiana, as well as Trinidad and Tobago gained independence from Great Britain, which was immediately followed by the withdrawal of these states from the Caribbean monetary union. Their departure provoked the actual collapse of the British Caribbean Monetary Authority, since they were the largest states in the monetary union and their exit deprived the West Indian dollar of support in the region ^[19].

Thus, in 1964, the currency agreements between the countries were terminated, and the British Caribbean Monetary Authority was liquidated ^[20].

The dollar of the Eastern Caribbean Islands before the founding of the common central bank (1965-1983). In 1965, the Eastern Caribbean Monetary Authority ("East Caribbean Currency Authority") was established, an organization that, according to its principles of operation and purpose, repeated its predecessor, but its activities now extended to the island territories remaining in the monetary union.

And already on October 6, 1965, an updated currency was introduced into circulation – the Eastern Caribbean dollar. The exchange of old banknotes for new ones was carried out in a ratio of 1 to 1, since the parity rate of the new currency was also 4.8 Eastern Caribbean dollars per 1 pound sterling ^{[21, p. 88]}.

The new banknotes retained the Caribbean-island style in their design and were presented in 4 denominations ($1, $ 5, $ 20 and $100). All denominations had a single image of the obverse and reverse and differed only in color, as well as a portrait of the formal head of state, Queen Elizabeth II, was placed on all banknotes. The direct printing of banknotes was carried out by the private company Thomas De La Rue & Company Ltd in the UK.

In 1976, the monetary authorities decided to link the Eastern Caribbean dollar to the US dollar. The exchange rate was 2.7 Eastern Caribbean dollars per 1 US dollar (such a solid currency ratio remains to this day). This fact is explained by some reasons, the main of which is the loss of the dominance of the pound sterling in world trade and international settlements, with the parallel capture of the dollar of the world economy at that time.

The Caribbean island states, being geographically remote from the former metropolis, interacted mainly with countries that used the US dollar in one way or another, and therefore the conversion of the national currency to the American dollar was more logical. In addition, it was at that time that the rapid development of offshore business began, which spurred the need for the US dollar as an international reserve currency ^[22].

It is worth noting here that other British Overseas Territories (Turks and Caicos, Pitcairn, British Virgin Islands, Cayman Islands and Bermuda) did the same ^[23].  

In the period of the 70s and 80s, there was a gradual development of the economies of island states using the Eastern Caribbean dollar. The amount of money in circulation has increased almost 6 times since 1970 by 1986. There was also an increase in the foreign exchange reserves of Karensi Board, from 5.3 million US dollars in 1970 to 17.8 million US dollars in 1986 (see table 1).

Table 1. Data on the money supply in circulation and foreign exchange reserves.

Source: compiled by the authors based on ^[21].

Thus, actively developing after its re-creation in 1965, the Eastern Caribbean Monetary Union came to another important milestone in its history – the creation of a common central bank in 1983.

The dollar of the Eastern Caribbean Islands in our days (1983-2023). On July 5, 1983, an agreement was signed on the establishment of a single central bank between the island States. And on October 1, 1983, the Eastern Caribbean Central Bank ("East Caribbean Central Bank") was officially established. The purpose of the creation of a common central bank was to ensure the stability of the Eastern Caribbean dollar, to bring the banking sector into integrity in all member States of the union, as well as to promote their balanced economic growth and development.

During the transition to the central bank, the functions of the monetary authorities expanded, based on this, it can be argued that although the Currency board system remained, it began to have a modified character (the so-called modified currency board), now having some differences with the "classic" currency board ^[24]. 

Also, during the transition to the central bank, the appearance of banknotes was updated. In 1985, a new series of banknotes was issued, which included denominations of $ 1, $5, $10, $20 and $100.

Thus, the common central bank allowed the Eastern Caribbean island states to move to a new stage of their development, moving away from the colonial past, and also gradually begin to integrate into the global economy.

As I. N. Rudenkov notes: "From the very beginning of its existence, ECCB primarily relied on three main monetary policy instruments: reserve requirements, discount rate and minimum savings rate. The percentage of mandatory reserves (the ratio of reserves of federal reserve banks to the amount of deposits and banknotes issued) is 6% of the average deposits and has not changed since its inception in 1984.

However, administrative measures regarding mandatory reserves were changed in 1994, when the reserve period was extended to four weeks (previously it was one week). This regime remains in force to this day.

A similar situation has developed with the discount rate, which was reduced from 10.0% to 9.0% in 1993 and did not change during the period under review" ^{[25, p. 29]}.

In the period from 1993 to 2012, a new series of banknotes was in cash circulation, which thematically differed from all previous ones (each banknote had its own unique reverse design), and there was also an improvement in protective characteristics.

In addition, the nominal value of $ 1 was excluded in the new series, since over time inflation practically devalued this denomination and its further use was impractical. And in large denominations, on the contrary, there was an update and a new $ 50 banknote appeared, which balanced the line of banknotes.

In this form, cash circulation lasted until 2019, when new banknotes were issued into cash circulation, which were printed on a new material – a polymer substrate.

The trend to issue money from plastic has emerged in the world relatively recently. To date, countries such as Canada, Australia, Great Britain, etc. have completely switched to plastic banknotes. Also, the trend has been picked up by small regional states, especially in hot and tropical climates, since plastic banknotes are less exposed to temperatures, and their service life significantly exceeds their paper counterpart. In the Caribbean, Trinidad and Tobago, the Eastern Caribbean Islands and Barbados have already switched to plastic banknotes. Thus, at the end of this section, we can note the key events that took place at each stage of the development of the Eastern Caribbean dollar (see table 2)

Table 2. The main stages of the development of the Eastern Caribbean dollar.

Source: compiled by the authors.

The Eastern Caribbean Monetary Union ensures the stability of the common currency and the systematic economic development of the Caribbean Island States. However, difficulties are also present in his work, since "the Eastern Caribbean Monetary Union, according to many experts, is a kind of miniature of the problems faced by the European Union (in the area of growing fiscal deficits, lack of financial integration, problems with external debt and in the financial sector)" ^[2].

Currently, the economies of the Eastern Caribbean Islands differ little from each other and represent typical island microstates, where the main sectors of the economy are inbound tourism, the provision of various offshore services, as well as the export of exotic agricultural products. Such countries are critically dependent on the receipt of foreign currency (primarily the US dollar), therefore they resort to various methods of attracting foreign capital (for example, numerous "passport for investment" programs) ^[26].

The Eastern Caribbean "Dcash" and the experience of other digital currencies of central banks.

Modern trends towards the total digitalization of the economy have not bypassed the Eastern Caribbean Monetary Union and its currency. In 2017, the Eastern Caribbean Central Bank announced the development of its digital currency and, according to CBDC Tracker, currently continues to be at the pilot project stage ^[27]. In April 2021, the Caribbean digital currency "DCash" was launched, but did not achieve significant success and was even disabled for 2 months for technical reasons ^[28]. A comparative analysis of the possibilities provided by the project, the digital ruble and the Caribbean "DCash" is presented in Table 3.

Table 3. Comparison of the capabilities of the digital ruble and DCash.

Source: compiled by the authors.

Analyzing the experience of the digital Caribbean dollar, it is worth noting that it turned out to be quite successful, although it had certain difficulties. The main problem with the functioning of the Caribbean digital dollar was related to a technical glitch that occurred in 2021, due to which the entire payment infrastructure was disabled. This case shows the particular importance of the infrastructural stability of digital currencies, since in case of its violation, the entire payment infrastructure can be disabled.

One of the solutions to this problem is to implement the ability of the infrastructure to work offline. This possibility is particularly relevant in the Caribbean region, which is often subject to weather crises. However, the experience of the Bahamas in testing the inclusion of autonomous operation showed "that the planned solution for local redundancy of the main communication system was as vulnerable to weather conditions as the main communication system" ^[29]. Also, the experience of the Bahamian "Sand Dollar" showed low public involvement in the use of digital currency, because two years after the official launch, "in July 2022, Sand Dollar had in circulation an electronic currency worth only about 300,000 dollars and 30,000 digital wallets, and about 845 enterprises accepted it" ^[28]. And currently, the Government of the Bahamas will continue to make regular efforts to promote it.

This trend is also observed with other digital currencies of central banks (with the exception of the Chinese digital yuan). Perhaps the most striking example is Nigeria and its digital currency "eNaira". The Nigerian population, due to the permanent economic crisis, is the most crypto-savvy population in Africa. As noted in the report of the KuCoin crypto exchange, about 35% of Nigerians aged 18 to 60 years either own or traded cryptocurrency assets in 2022.  Against this background, the government of the country began to introduce prohibitive measures against cryptocurrencies (prohibiting financial organizations from conducting transactions with crypto exchanges), at the same time introducing its official digital currency. However, the official digital currency of Nigeria turned out to be completely unclaimed, only 0.5% of the country's population used "eNaira" ^[30].

"After such a failure, the state began to popularize the digital naira by means of coercion – on December 6, 2022, the Central Bank of Nigeria issued a directive for financial organizations, which introduced a limit on cash withdrawals from ATMs for individuals and legal entities (100 thousand naira and 500 thousand naira, respectively)" ^[31].

Based on this, the central bank of the Russian Federation should take a responsible approach to the implementation of the digital ruble project, taking into account the successful and, first of all, unsuccessful experience of already launched digital currency projects. Also, special attention should be paid to the possibility of cross-border settlements using digital currencies. And if the unification of the payment infrastructure of the islands is relevant for the Caribbean digital dollar, then in modern Russian sanctions realities, this means the possibility of excluding various options for political pressure using instruments to limit international economic settlements and block assets, primarily from the countries of the collective West ^[32].

Conclusion

Thus, it can be concluded that the Eastern Caribbean dollar is a regional currency that circulates within eight island microstates. Analyzing the history of the development of monetary circulation in this region, we can conclude about the rich experience of using the colonial currency supply system. At the same time, at its core, the dollar of the Eastern Caribbean Islands remains a classic colonial currency that uses a fixed exchange rate system (Currency board) in relation to an external reserve asset (US dollar). It is worth noting that such a system makes it possible to ensure the stability of the value of the currency, as well as to have low inflation, especially given the economic specifics of the region and its dependence on foreign exchange earnings from outside. Also, it is worth noting the experience of the functioning of the digital analogue of the currency of the Caribbean islands, which, at this stage, is of a mixed nature. At the same time, it still retains a further development perspective, primarily due to the geographical and economic characteristics of the countries of the region.

Analyzing the experience of the Caribbean digital dollar, as well as other digital currencies of central banks, will allow the Russian digital ruble to avoid the difficulties and mistakes that pilot projects of digital currencies around the world have already encountered.