World's Smallest Currency Union: Caribbean Challenges

Yes, Virginia, these dollars bear Queen Elizabeth II's image

The Eastern Caribbean Currency Union (ECCU) is the world's smallest currency union among the four existing worldwide. The European Monetary Union (EMU) is known by all, whereas the other two are in Africa. What makes the ECCU doubly interesting is that it is pegged to the US dollar. In fact, it predates the EMU by half a century, although it changed the currency it is being pegged to from GBP to USD halfway through:

The OECS members share a common currency, the Eastern Caribbean dollar, which has been pegged to the U.S. dollar since 1976 at EC$2.70=US$1, and was pegged to the British pound at EC$4.80=£1 from 1950 to 1976. Prior to the recent inception of the European Central Bank, the ECCB was one of only three common central banks in the world and the only one where the member countries have pooled all their foreign reserves, the convertibility of the common currency is fully self-supported, and the parity of the exchange rate has not been changed.

Now, there's thought-provoking stuff over at the IMF site concerning the challenges faced by ECCU. Overall, it makes economic sense for micro-sized economies to band together currency-wise:

In terms of the benefits, the small size of these countries means that the currency arrangement allows them to take advantage of scale economies. It also allows them to diversify risk. This means that if one country gets hit by an external shock or natural disaster, the other countries can pool resources and deal with the shock more effectively.

Again, because of their size, these islands can provide, at the regional level, more cost-effective public services. So that is a major benefit. What also matters a great deal is when the union speaks with one voice the countries can be better represented at the global level. 

That said, it is subject to the same sorts of problems the Eurozone faces:

Interestingly enough, the ECCU is actually a microcosm of the European Economic and Monetary Union, since the ECCU has also faced rising fiscal deficits, unsustainable debt levels in a number of states, a lack of fiscal integration, and challenges in parts of the financial sector that can undermine the stability of this union. As illustrated by the European experience, overcoming these challenges is particularly difficult in monetary unions. 

What can I say? God save the queen--and the East Caribbean Dollar

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Fleeing Egypt? Buy Caribbean Dual Citizenship

Mur-dah! Today, let's look at the utterly fascinating intersection of e-commerce, nationality for sale, and the turn for the worse in any number of Middle East countries. I saw the banner advertisement above while visiting Ahram Online that pretty much sums up the mood in Egypt and that outstanding exercise in democracy called the "Arab Spring" (hip-hip-hooray for freedom!) Apparently, real Egyptians do not share the white man's misguided euphoria over regime changes that were supposed to help usher in Western-style political institutions.They just keep piling into the streets and killing each other with abandon. Instead of a democracy emerging from a plurality of voices expressing their discontent that led to Mubarak's downfall, they perhaps inevitably succumbed to the rule of the best-organized and -disciplined faction aside from the military in the Muslim Brotherhood. That is the first component of this post.

The next component in this story is the ever-changing quest of small Caribbean nations for gimmicks--I mean--"additional sources of state revenue." Their small size and remote location means that their viable sources of revenue tend to look the same. To wit:

1. tourism
2. tax havens (paradis fiscaux)
3. offshore gambling sites
4. flags of convenience
5. nationality for sale

I think these are self-explanatory; let me go through the first four: Beach-loving Westerners have in the past been attracted to these destinations' more pristine waters since they do not lie in more polluted shipping lanes. As more cruise ships dock, the fees pile. For a long time, they have also offered themselves as headquarters for dummy corporations created for the purpose of avoiding taxes in industrialized nations (or laundering money for the more cynical). Given their limited population but access to the Internet, many also sought to host online gaming operations. Lastly, they have also offered to domicile international vessels to skirt maritime regulations or to save on various costs alike certification and so forth.

The global financial crisis has caused difficulties for pursuing (1)-(4): Fun-in-the-sun loving Westerners obviously do not have as much disposable income at a time when countries like Spain have unemployment rates north of 25%. So much for those Caribbean cruises. Meanwhile, as deficits spiral into eternity for any number of industrialized countries, organizations like the OECD have tightened the screws further on tax havens. While results are mixed, there is little doubt that it's no longer as easy to hide income as it was before. As for offshore gambling sites, the United States has not allowed those to ply their trade in this largest of all markets since 2006--see the case of Antigua. Finally, the trade in licensing vessels from elsewhere with flags of convenience is usually dependent on the health of global trade. (There is also an ongoing crackdown of sorts on FOC.) Suffice to say, it's not so healthy nowadays.

So, (1)-(4) have been rather negatively affected as sources of income for tiny island nations. These are indeed sour times. However, the ad above struck me as a possible way to make the best of a bad situation as various places on earth go to heck and beyond: Here, of course, the argument is to secure financial and personal security lest the Muslim Brotherhood go the way of the Ayatollah Khomeini (or even just Ferdinand Marcos). Another website selling citizenships to St. Kitts touts the following benefits if you invest in a home there costing at least $400,000:

• Visa free travel to all EU schengen countries including Switzerland, Canada, UK and Ireland
• No residence or minimum stay requirements
• Tax free – no income or wealth tax.
• Lifetime citizenship
• Easy second passport and citizenship for your family members.
• Extra Privacy in small peaceful country.
• Dual citizenship benefits.
• Choice of Real estate investment.
• No Personal visit required

The last is their italicization, not mine. It's most definitely a sordid business, but who am I to say what tiny island nations can and cannot do? Certainly they have their own set of challenges. While the lengths they have gone to generate revenue may appear...iffy to some, what are the alternatives in a world where international rules of the game are set by far larger nations? As the saying goes, try walking in their shoes.

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