The decision by voters in the United Kingdom (UK) last Thursday to leave the 28-member European Union (EU) has serious implication for the Eastern Caribbean Currency Union (ECCU).
Governor of the Eastern Caribbean Central Bank (ECCB), Timothy Antoine on Friday described the decision as “a really big move” and urged Caribbean nationals to appreciate the value of their own regional integration institutions.
“A lot of this creates a sense of uncertainty,” he said, noting that the International Monetary Fund and other institutions have projected that the British economy, the world’s fifth largest, could go back into recession as early as next year.
“Obviously, we are very concerned because the UK is an important source market for us in terms of tourism and that could affect us,” Antoine told reporters in Kingstown.
The withdrawal of the UK from the EU – “Brexit” could, over time, affect aid to the Caribbean, Antoine said, even as he noted that the UK has about two years before leaving the EU.
“But clearly, any downturn in the UK economy can have a potential adverse impact on the Caribbean economies, especially with regards to tourism and, to some extent, trade and remittances.”
Antoine said it is important to recognise that the single biggest concern that central bank governors and persons in the financial sector have is uncertainty.
“We know what could happen but we are not sure what would happen because it depends on how the negotiations take place, how fast they exit, how the global economy responds. But uncertainty is never a good thing. It affects confidence, so, obviously, we are very concerned about that.”
Uncertainty has seen the value of the pound sterling against the Eastern Caribbean Dollar falling by almost 50 cents since the results of the referendum.
Antoine said the ECCB is well organised in terms of its portfolio and, therefore, does not have any particular concerns in that regard.
“We are in high-quality assets, and, if anything, there will be a flight to quality, which means that we may see some capital appreciation over time.
“The downside is that we may see our investment income may not come as quickly because our interest rate may get cut. There may be delays in raising interest rates because, obviously, in the current environment, there may have to be further quantitative easing to support the UK economy and the global economy to ensure that it does not go back into recession or to minimise the risk of its going back into recession.
Investopedia defines quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
Antoine said a lot of what drove the UK to leave the EU is “this global discontent about globalisation — that the fruits of globalisation are not being equitably shared.
“The decision is premised on fear: fear of losing control; fear about immigration — people coming in your country; fear and lack of fair share, where some people feel that globalisation is not delivering enough benefits — some people get in but not enough people benefitting.
“That is what is driving a lot of this. So you’re seeing this rise in economic nationalism; you’re seeing the rise in right-wing movements; you are seeing what you see in the U.S.; you are seeing what you see in the UK and other parts of Europe.”
Antoine noted that people are questioning some of the international and regional institutions and whether or not they are getting value and the cost-benefit analysis.
“I want to say that in this region, we have to very mindful of the important contribution regional integration had made and is making to our economic development. I ask the simple question, ‘Where would we be without the ECCB?’ Can you imagine every country trying to run a central bank? It would be a disaster.
“So, the regional institutions have helped us. Now, of course, we must ensure that they continue to work for us and that’s why the responsibility of institutions such as ours — the Central Bank, is to make sure we’re engaging people — that people are a part of what is going on, they feel a part of it; that they are able to share their views and we are able to listen to them and make the right and appropriate policy adjustments and recommendations.”
He said that in the UK, there is a sense somewhat of a disconnect between what is going on in some of these bodies, like the European Commission and how people in rural and northern England feel about what’s going on.
Antoine noted that London voted to stay in the EU by about 70 per cent because, as the financial centre, Londoners are benefitting from the EU, but other people who are not benefitting as much opted out.
“So there are some important lessons for us to reflect on as a region with this Brexit decision,” Antoine said.