Introduction of US dollar on Aruba, Curaçao and Sint Maarten under consideration

[eurocoin]

In a recently published document the Dutch government announced that it is going to commission an independent external party to hold an investigation into whether Aruba, Sint Maarten and Curaçao should keep their own local currencies or whether it would be better for them to introduce the US dollar. Based on the outcome of the investigation, the Dutch government is planning to take concrete measures. It is likely that the islands will then more or less be forced to do what is in the best interest of their economies.

The economies of the islands have been very weak for many years and the Dutch government has had to provide large amounts of money to keep everything running there. Major reforms are already being implemented and will continue to be implemented in the near future so that hopefully the problem is being solved once and for all. The islands are unlikely to have much choice as the Dutch government is eager to solve this problem and they remain reliant on Dutch aid for the foreseeable future. The situation has worsened now that tourism, their major source of income, has come to a standstill because of the corona virus outbreak.

Aruba currently uses the Florin. Curaçao and Sint Maarten currently together form a currency union using the Netherlands Antilles guilder. They are working on the introduction of the Caribean guilder which is planned to become the new currency of their union as of January 1, 2021.

In 2013 a report of the Social Economic Council (SEC) was released which mentioned that it would be better for the economy of Sint Maarten to leave the currency union with Curaçao. The introduction of either its own currency or the US dollar would have a positive impact on its economy, with the latter option being preferred by the SEC. Use of the US dollar is up until this day already widespread on Sint Maarten.

[redlock]

Based on the outcome of the investigation

Any idea when that might be?

[eurocoin]

Any idea when that might be?

It is unknown when it will be ready. I wonder what the impact of this will be for the aim of Sint Maarten and Curaçao to introduce the new currency on January 1, 2021. I guess they will have no choice but to postpone it again.

[eurocoin]

The research in regard of the possible introduction of the US dollar in Aruba will start in 2022 at the earliest.

It is not yet known when the investigations in regard of the possible introduction of the US dollar in Curaçao and Sint Maarten will begin.

[brandm24]

I was curious as to what the benefit would be if they used the US dollar. It seems like it's already widely used there so that's a plus. It would strenthen the local economy because the dollar is readily accepted and stronger than their current currency? If that's the case then, it would make perfect sense to do so. It also would relieve the pressure from the Dutch government as you say.

Bruce

[Figleaf]

Since THE oil refinery closed, shady banking was ended under OECD country pressure and Venezuela sank into its home-made economic morass, tourism (including adjacent services, such as gambling, prostitution and drugs) has been the main economic activity in Curaçao. Tourism is a USD trade. Why bother exchanging the incoming money?

Peter

[eurocoin]

The International Monetary Fund has been asked to conduct the investigation in regard of Curaçao and Sint Maarten. It is unknown when it will be ready.

[eurocoin]

By April of this year, the International Monetary Fund had finished its investigation in regard of the currency union of Curaçao and Sint Maarten, and possible alternatives for it like the introduction of the US dollar on the islands. Unfortunately it appears that their findings are not public.

[redlock]

Unfortunately it appears that their findings are not public.

That's too bad.
But I guess, we will find out eventually.

[eurocoin]

In July of last year, the Central Bank of Curaçao and Sint Maarten published a position paper on the matter, which can be found here. In it the Central Bank concludes that dollarisation is unlikely to produce significant economic benefits for the monetary union of Curaçao and Sint Maarten, while the burdens and, in particular, the transitional risks involved are real. A decision to dollarise should, according to the Central Bank, therefore only be taken after careful consideration and understanding of the fundamental, underlying macroeconomic factors and the necessary institutional, operational and structural reforms. The Central Bank reiterated this in its annual report 2021, that was recently published.

In August of last year the report of the IMF on the possible dollarisation of Curaçao and Sint Maarten was published. It can be downloaded here. Instead of choosing a clear preference, which it was asked for, it has outlined issues that the authorities could consider in their discussion whether to pursue official dollarization or maintain the current arrangement. The IMF emphasized in its report that the choice of the exchange rate arrangement is the prerogative of the authorities, and that the purpose of its paper is to inform their discussion on this issue rather than to provide policy advice.

No official decision has yet been taken on the matter. There is also no update on the investigation in regard of the possible introduction of the US dollar on Aruba, that was sheduled to begin this year at the earliest.