The Function & Role of the Central Bank

 

The Bank’s most important objectives are to maintain the external stability of the Netherlands Antillean guilder (NAf.) and to promote the efficient functioning of the financial system in the Countries Curacao and St. Maarten. To realize these objectives, the Bank, as supervisory authority, has frequently recurred to credit control measures and/or to changing the discount rate. The functions of the Bank, explicitly summed up in the Bank Charter, are;

 

First, the Bank is the only institution entitled by law to issue paper money in the Countries Curacao and St. Maarten. The Bank also is charged with the circulation of coins.

 

Second, the Bank supervises banking and other credit institutions to primarily promote the stability, integrity, efficiency, safety, and soundness of the financial sectors of the countries Curacao and Sint Maarten in general and to safeguard the interest of the depositors and other creditors of the banking and other credit institutions in particular. 

 

Third, the Bank manages the foreign exchange reserves of the Netherlands Antilles, which includes regulating of the transfer of payments between residents and nonresidents of the Countries Curacao and St. Maarten.

 

Finally, the Bank acts as the government’s treasurer by receiving and making payments from and to the public through the tax collector’s accounts at the Central Bank.

 

To strengthen the Central Bank’s independent position vis-à-vis the government, the Bank Charter limits the monetary financing of budget deficits to 10% of the central government’s revenues in the previous year. This limitation must be seen in the context of an overdraft facility to meet liquidity deficits of the public sector that result from seasonal variations in government revenues.

 

Monetary and banking supervision

Two of the Bank’s basic tasks are to control the amount of liquid assets in circulation (monetary supervision), and to act as the supervisory body for credit and banking institutions operating in the Countries Curacao and St. Maarten (prudential supervision). Furthermore, the Bank is one of the government’s main advisors on financial and economic affairs.

 

The monetary policy of the "Centrale Bank van Curacao en Sint Maarten" during the last two decades has been geared toward promoting a stable value of the NAf with respect to the US dollar. Since 1971 the official NAf/$ rate of 1.79 has been firmly supported by the monetary authorities. The Bank’s main reason for pegging the NAf to the US dollar is that over the years, more than 60% of its international trade relations have been conducted with the United States or in US dollars. To maintain the dollar standard, the Bank must ensure a sufficient supply of foreign exchange. To manage the foreign exchange reserves of the Netherlands Antilles, the Bank in the past has exerted control over the credit extended by commercial banks.

 

The prudential supervision of banking and credit institutions is aimed at controlling the soundness of the financial system in the Countries Curacao and St. Maarten and at safeguarding the deposits of creditors at commercial banks. This supervision is pursued mainly through the Bank’s analysis of the solvency and liquidity development of banking and credit institutions.