Banking and Finance
In 1987 Grenada, as a member of the Organisation of Eastern
Caribbean States (OECS--see Glossary), was a member of the Eastern
Caribbean Central Bank (ECCB), which was headquartered in St.
Christopher and Nevis. It was bound by the ECCB's general
guidelines on money supply and bank regulation and used the Eastern
Caribbean dollar, which was pegged to the United States dollar at
a constant exchange rate of EC$2.70 equals US$1.00. This
relationship had some unusual effects on Grenada's international
transactions. Because Grenada's exports were sold to numerous
nations, the strength of the United States dollar in relation to
other foreign currencies affected the ease with which Grenadian
exports were sold.
In the case of a strengthening dollar, the Eastern Caribbean
dollar would also appreciate with respect to other world
currencies. This would cause Grenadian exports to become more
expensive in the world market, while imports would become less
expensive and more competitive with domestically produced goods.
The overall effect would be to reduce Grenada's terms of trade,
negatively affecting its balance of payments position. The reverse
situation would have the opposite effect, strengthening Grenadian
exports abroad, which would discourage the purchase of imports and
improve overall terms of trade and the balance of payments. This
situation occurred in 1987 as a result of the depreciation of the
United States dollar in world currency markets.
The financial needs of Grenada were served by numerous public
and private institutions below the central bank level. In 1985 the
commercial banking system included four financial institutions, two
of which were controlled by the government. The system was a
holdover from the PRG, which chose to absorb all but two commercial
banks into the public sector. The Blaize government slowly returned
financial intermediation (see Glossary) to the private sector and
intended to solicit proposals in 1987 for the sale of the remaining
two publicly controlled banks.
Credit was extended for development projects through the
Caribbean Financial Services Corporation, which provided long-term
funds to new businesses through AID, the Grenada Development Bank,
and the Grenada Cooperative Bank. Foreign investors provided much
of their own funds for capital-intensive investment. The government
planned to establish a merchant bank in 1987 to facilitate lending
to new small business ventures.
Data as of November 1987