Watching rates talks

I am most interested in the present discussions between the banks and government regarding the level of interest rates in the Cayman Islands.

In particular I am intrigued by the notion that the CIDB should play the role of a central bank in order to set rates and control these levels! (I mean why care what the Fed Funds rate is, after all that’s for all those international banks abroad, not for our local Cayman institutions using our own currency!)

In the first place, the CI dollar is tied to the US greenback and the local banks settle their interbank clearings with each other in US dollars (in New York).

Here’s an example – a customer deposits a CI cheque in bank A, the bank clears it to bank B and receives the US$ equivalent in its account in New York.

Bank B now has a CI deposit on its books but backed by US dollars in New York! Hard to get rid of those pesky old US dollars – they’re just so intertwined aren’t they? If you want to back the currency with US dollars you can’t ignore the level of US interest rates!

Secondly, I am also fascinated by the notion that local banks source all their funds locally, which implies that all the loans made by the local banks, both in Cayman and to other
jurisdictions are funded by the local population – presumably in CI dollars if you believe Mr. Anglin.

Unless there has been a serious redistribution of global wealth I find that hard to believe!

The vast majority of deposits in Cayman are US dollars sourced from overseas and the depositors are like most people – they shop around for the best rates. If the rates in Cayman are no longer competitive they will simply go somewhere else like the Bahamas, or Bermuda, or the Channel Islands (to name but a few).

Surely Mr. Charles Clifford cannot be so naive as to think that the Cayman Islands banking cartel can simply thumb their noses at the rest of the world’s money markets and survive to tell the tale!

Eric Steele