WILLEMSTAD - In 2022, we witnessed a significant decrease in the gross official reserves of the Central Bank, amounting to nearly 260 million guilders. Official reserves are a kind of savings pot held by the Central Bank of Curaçao in foreign currency, which can be used to influence the exchange rate and conduct international payments. These reserves are an essential indicator of a country's economic stability.
The decrease in Curaçao's official reserves has several causes. Firstly, there was an increase in imports, or the purchase of goods and services from abroad, as a result of economic recovery. This necessitated the purchase of more foreign currency from the Central Bank by commercial banks.
Secondly, there was an increase in foreign investments as the capital restriction was lifted on January 1, 2022. The capital restriction is a measure that makes it more difficult for investors to invest money outside of Curaçao. Its lifting led to a greater outflow of capital from Curaçao, further reducing the official reserves.
The transfer of funds to foreign countries by financial institutions falling under the emergency measure and the transactions of commercial banks in Bonaire also contributed to the decline in the official reserves.
2023
But as of May 29, 2023, the gross official reserves increased again by over 242 million guilders compared to the end of 2022. This mainly reflects the inflow of funds from the Sint Maarten Recovery, Reconstruction, and Resilience Trust Fund at the World Bank, as well as the transactions of commercial banks in Bonaire.
Despite the increase in reserves, it is expected that import coverage, which is the extent to which the Central Bank is able to cover all imports of the country with its foreign currency reserves, will decrease to 4.5 months by December 2023. This is still well above the norm of three months, indicating that the economic stability of Curaçao is still ensured.
The decrease in official reserves can impact the economic stability of Curaçao and may affect the Central Bank's ability to maintain the stability of Curaçao's currency.
It is important to strengthen the reserves to ensure that Curaçao can continue to achieve its economic objectives.