in the economic characteristics of members in several important areas. this would not be the first union to face that issue but others, like the united states with different conditions among its member states, like the european union and others, have mechanisms for effecting fiscal transfers to compensate for the adverse effects of a common policy on some members. in this regard, we can note as an example that the so - called “ less developed countries ” of caricom have always been extremely sensitive to the need to protect their populations via “ special and differential treatment ”. in similar vein, jamaica has always been and continues to be focused on north america and europe in its external economic relations in a way that relegates a mechanism to promote commerce with caricom to a secondary role. replacing the jamaica dollar with a caribbean dollar would be likely to enhance the predictability of its external and internal value and would offer a stronger level of commitment than an announced peg. by the same token, it would prove to be a stronger handicap where fundamental economic adjustment is required locally and where any change in parity requires unanimity among equal partners in the union. dollarisation dollarisation has returned to the discussion table periodically and has been touted as an even stronger commitment to monetary stability as it would abolish the currency entirely and replace domestic money with the us dollar – both for circulation and for accounting purposes. as in the case of the caribbean dollar, the adoption of the us dollar would offer the benefit of tying our inflation experience to that of the united states and monetary policy would flow from the federal reserve in washington. of course, there are key differences between us dollarisation and caribbean dollarisation. there would be no domestic input into policy making. there would be no right to the sharing of seigniorage – the income that accrues to the issuer of national currencies. there would be no means of supporting the financial system if liquidity shortages arose. dependence on the united states for currency for circulation could raise issues of security and sovereignty ( as is reported to have occurred in panama ). therefore, dollarisation could offer the kind of assurance that we are seeking to establish for ourselves but it would not be our doing and would say to the world “ we are just not capable ”. more important, it would present no guarantees as to reversibility especially when questions of security, sovereignty and independent national development issues assume centre stage in a nation ’ s political life. i would argue that there is a better

alternative. a strong and autonomous central bank the starting point for offering succeeding generations a much more pleasing environment for price stability, growth and development is to define for ourselves what is a tolerable rate of inflation and what is not. currently, our medium - term forecasts are built around getting inflation down to the 4 % – 5 % range which is, approximately, the collective experience of our bis central bankers ’ speeches trading partners. there needs to be a public consensus, involving the highest levels of leadership, academia, commerce and an informed public, about the level of inflation that the authorities should be held to. this is the first step. the second step is to deal with the perennial imbalances in public finances that are the counterpart to the imbalance in our current account. these have led to a huge overhang of debt the servicing of which consumes virtually all of the government ’ s tax revenue and crowds out public investment in infrastructure and social development. this is part of the story behind the slow growth and sluggish change in per capita income. it also retards growth in productivity which is the one sure way of achieving growth in gdp without inflation. the third step is to put in place the institutional arrangements that ensure that low and stable inflation becomes the key responsibility of the central bank and that measures to ensure accountability are in place. this is not as difficult as it sounds and requires only a modification to the legal and operational framework that we already have. the emerging literature on the redesign of central banks follows two strands : on the one hand, the delegation of monetary policy to a conservative central bank that then determines policy consistent with its low - inflation preferences ( the “ reputational ” option ) ; and, on the other hand, the formulation of strict principal - agent contracts where inflation targets are still set by elected officials but their achievement is contracted to a central bank empowered with the instruments to implement this ( the “ contractual ” option ). the federal reserve board of the united states is an example of the first option while new zealand ’ s reserve bank is often cited as an example of the second type. their relative merits are still unfolding but, given the dependence of the reputational solution on the personality of a single institution, the contractual option holds out greater promise of a credible, long - term, apolitical solution. an autonomous central bank would be one that is insulated from short - term political priorities both by its terms of reference and by its governance provisions. its focus on