~ A StMaartenNews.com review of the 2020 Budget of the Central Bank of Curacao & St. Maarten ~
PHILIPSBURG – If it is up to the Central Bank of Curacao and St. Maarten, then the Antillean guilders will disappear in 2021 and be replaced by the Caribbean guilder. The bank wants to introduce the new currency in the first half of next year, according to a publication about the bank’s 2020 budget.
The Caribbean guilder was already a topic of discussion around the time when Curacao and St. Maarten became autonomous countries in the Kingdom of the Netherlands on 10-10-10. “The legislation is already in place,” the Central Bank’s document states, adding that the introduction of the Caribbean guilder was delayed because no decisions were taken about it.
The bank also wants to research the introduction of a digital currency and advise the governments of both countries about the introduction of the Caribbean guilder. At the time the budget was put together (the board of supervisory directors approved it on January 23, 2020, but it was only sent to the parliaments of Curacao and St. Maarten on October 1), the bank still had to select a supplier for printing the new currency and determine the design, the amounts, the authentication characteristics and the specifications. A communication plan around the introduction of the new currency is also part of the plan.
The bank furthermore intends to develop a vision and a plan of approach for the introduction of a Central Bank digital currency. It also wants to promote digital payments and discourage the use of checks.
All these initiatives are part of the bank’s strategic plan for the period 2018-2020; part of the plan will continue in 2021. The document does not indicate what the potential impact of the COVID-19 pandemic is on the execution of the plan.
It is interesting for businesses to know that the bank is also looking into the implementation of alternative retail payment and clearing systems that should lead to lower transaction costs.
The bank’s assets are divided between Curacao and St. Maarten. The current division key gives Curacao 79.04 percent and St. Maarten the remaining 20.96 percent. Per January 1, 2021, the bank will establish a new division key. The bank uses two pre-determined components to calculate this key once every five years; 50 percent is based on the sum of each country’s gross domestic product (GDP), while the other half is based on the sum of the number of inhabitants.
The strategic plan focuses on three main objectives: the monetary stability of Curacao and St. Maarten, the stability and competitiveness of the financial sector and the transformation of its organization into a customer-friendly and innovative bank.
Maintaining the peg of the Antillean guilder to the American dollar is the prime objective for maintaining monetary stability. The bank has to make sure that the official reserves of foreign exchange are sufficient to cover the costs of three months worth of imports.
Commercial banks have to park a percentage of their domestic obligations on a blocked account with the Central Bank. The mandatory reserve skims the excess of freely available resources; this influences banks’ ability to extend credit. The Central Bank aims to keep the growth of credit under control.
To ensure the stability and competitiveness of the financial sector, the Central Bank is using its guarantee function towards clients and institutions. The focus is here on an optimal execution of risk-driven supervision. The bank will increase its on-site visits to financial institutions and take stock of the need for additional enforcement measures. The objective is to inspire financial institutions to abide by established regulations, norms and standards.
What else can we learn from the Central Bank’s strategic plan? A few things; firstly, the bank intends to deliver draft national ordinances to the governments of Curacao and St. Maarten that cover the following topics: payment service providers, financial market infrastructure, oversight and cryptocurrency. Secondly, the bank wants to develop and “rigorously implement” a cybersecurity policy and perform annual security assessments of key IT-systems.
And there is more: the Central Bank wants to work on its reputation. “In the last year, public debate about the integrity of directors has affected the reputation of the Central Bank,” the document states. “The current organizational culture is relatively traditional, top-down, segregated and hierarchic.”
People have called the organization “competent but rigid.” The objective is to turn the organization from “closed and dark” to “open and light.”
And then the numbers from the 2020 budget; the bank projects a loss of a bit over 2 million guilders – but that projections date from before the outbreak of the COVID-19 pandemic. The budget does not contain an explanation for the loss. Based on the earlier mentioned division key, St. Maarten’s share in the loss is 437,000, while Curacao hangs for a bit more than 1.6 million. In 2019 the bank still recorded a profit of 12.7 million.
The bank will invest a million guilders in the renovation of its offices. In Curacao, the bank will spend 700,000 guilders on fixing the fourth and fifth floors of its building and on an upgrade of the audiovisual equipment in its auditorium. In St. Maarten, repairs to the building on the Pondfill will cost 300,000 guilders.
The budget projects losses for the next two years: 2021 (2.9 million guilders) and 2022 (1.8 million). In 2023 the bank projects 2.2 million in profit and in 2024 profits increase to 8.8 million. These projections also are not supported by an explanation.
Personnel costs will drop dramatically from 41.2 million in 2020 to 31.9 million in 2024.
The budget for 2020 already shows a decrease in personnel costs. This is due to a decrease in the gratification by 1,215,000 guilders and a decrease of the one-off allowance by 703,000 guilders.
This allowance is paid to the staff at the end of the year, depending on performance. The bank has lowered the maximum allowance from 4.5 to 2.25 percent.
Personnel costs furthermore decrease in 2020 due to an “expected employee turnover.”
The projected decrease in personnel costs for the period until 2024 is based on the points of departure that were used for the 2020 budget. The budget-document also mentions “directly related costs due to the implementation of the results of the personnel reorganization and a decrease of the reorganization-provision by 2.5 million” as a reason for the decrease.
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