policy instrument and since some developing countries have limited fiscal space, they are at the mercy of resource transfers from the stronger member countries. fourth, the establishment of a regional central bank robs national economies of revenues from seignorage, which could be sizable in fiscal terms. this loss is in addition to the revenue loss from trade liberalization. the caribbean reality let me briefly apply some of these general principles to the caribbean situation. let me address the question whether, based on these principles, we are ready for monetary union of the eu variety. are the preconditions there, and more importantly, are we ready for the type of commitments that may be necessary? first the preconditions : although the level of intra - regional trade has been increasing in recent years. the share in total trade remains relatively small, at an estimated 8 to 10 percent, compared with ( as i said before ) 60 percent in the eu. and this ratio is heavily influenced by oil exports from trinidad and tobago to the rest of the region ; if these are excluded ( and who knows what petro - caribe will imply ), the ratio is more in the region of 3 to 5 percent. this low ratio of regional to total trade reduces the potential benefit from the reduction in transactions costs that could derive from the establishment of a single currency. still in terms of pre - conditions, one area in which we have been making important progress is towards intra - regional capital mobility. integration of the regional capital market is being enhanced through the proliferation of financial conglomerates operating throughout the caricom area. some progress has been made as regards the elimination of capital controls though two countries still maintain restrictions. there is a significant amount of informal collaboration in the area of financial sector regulation while work proceeds on the formulation of a caricom financial services agreement. an important aspect of the intra - regional capital mobility challenge which is receiving attention is the integration of the regional stock markets. the standardization of regulations among the various national stock exchanges, as well as regional connectivity, would go a long way towards creating a larger market for regional government securities and increasing the liquidity of the equity market. obviously, the creation of a single currency would facilitate capital market mobility though we would still have to deal with issues such as the standardization of settlement systems. as indicated above, regional labour mobility is an essential precondition to monetary union since it could be an important factor in cushioning exogenous shocks. initial steps towards the promotion of labour market

mobility have been taken with the elimination of work permit requirements for specific skills. in a monetary union, labour mobility needs to go much further if it is to be an instrument for raising regional economic efficiency and export competitiveness. the issue of asymmetric shocks could provide serious challenges for a regional central bank in the formulation of a common monetary policy in the caribbean because some of the economies are particularly vulnerable to natural disasters, the vagaries of tourism demand and sugar and banana prices while the movement of international oil prices has a differential impact. take the simple example of a precipitous decline in oil prices. in the case of trinidad and tobago, this could lead to a decline in growth and employment and perhaps call for a lowering of interest rates to boost domestic demand. however, lower oil prices will benefit the other caribbean countries and could spur faster growth and employment creation, a situation that may call for an increase in interest rates – thus the dilemma for the regional central bank. dealing with asymmetric shocks will require some kind of stabilization fund to provide temporary financial assistance to the more vulnerable economies. earlier i mentioned the need for a development fund and now i am talking about a stabilization fund. as a practical matter though, most of the caribbean countries are not in a position to contribute to these regional funds. trinidad and tobago, as the economically strongest regional partner, will need to bear a significant part of this burden. there is an argument that since trinidad and tobago has the most to gain, given its dominance in intra - regional trade, this is how it should be. since 1994 caricom countries have been involved in a regime to achieve macro - economic convergence. the regime incorporates targets for low inflation and exchange rate stability, a fiscal deficit of no more than 3 percent of gdp, a ceiling on external indebtedness, and a floor for external reserves. unfortunately since 1994, many countries in the region have gone through a series of adverse external shocks including a slowdown in the global economy, a number of natural disasters, 9 / 11, and a phasing out of the preferential arrangements for sugar and bananas. in these circumstances, the rate of macro - economic convergence has been much less than expected as several countries have found difficulty in meeting, in particular, the fiscal and external debt targets. the slippage has highlighted a marked difference in our approach towards a monetary union compared with that of the eu. in the case of the eu the convergence criteria were taken as a basis for policy