Introduction
The Central Bank uses certificates of deposit (CDs) and repurchase agreements (REPOs) to support the reserve requirement instrument. The interest rate on CDs is determined by the market participants in biweekly tenders. However, the CD rate is bound to a maximum, equal to the US dollar libid rate of an equal term plus a number of basis points. The Central Bank initiates open-market operations through buying or selling government securities whenever monetary developments warrant such an action.
The rationale behind this policy is a further flexibilization of the monetary policy.
Money market instruments
The Bank will use money market instruments whenever the liquidity position of the banking system warrants the use of these instruments. The money market instruments the Bank has at its disposal are the CD- and the REPO-facilities. Besides that, the Bank will offer government securities by outright sale.
Certificates of Deposit
The Bank offers the local commercial banks Certificates of Deposit (CDs) in two currencies, namely US dollar and Antillean guilder (ANG). The ANG CD has a nominal amount per CD of NAf. 100,000 and the USD CD has a nominal amount per CD of USD 100,000. The CD-terms offered can be 4, 12, 26 and 52 weeks, while the interest percentage will be determined by the market participants in bi-weekly auctions.
A CD-subscription form, including the date of the tender, will be sent to each institution on the Thursday prior to the auction date. Auctions will be held on Fridays. On the subscription form, each institution can fill out the total nominal amount of CDs it wants to buy, at various terms and interest levels (multiples of 0.01%). The CD-subscription form has to be returned by email to the Bank's Treasury Department before 12.00 PM on Friday. After closing of the subscription, settlement will take place and the results will be announced on Friday at 5.00 PM. The announced results will include the allotted amount of CDs and the interest percentage. The resulting balance will be settled through the clearing account. Every change in an institution's account will result in a statement.
Interest is calculated using the actual number of days and a year consisting of 365 days. Interest payments will take place at maturity. The interest will be deposited on the clearing account, together with the repayment of the principal.
The CDs are negotiable among domestic commercial banks. Whenever commercial banks reach an agreement on the sale and purchase of CDs, they both have to notify the Bank before 2.00 PM to assure same day settlement. The Bank will only act as a counterpart in a transaction if the liquidity position of the banking sector justifies such action.
Repurchase Agreement (REPO)
The REPO-facility covers maturities from 2 weeks up to two months, and provides the commercial banks with an alternative investment opportunity in Antillean guilders. Under this facility, the Bank is prepared to sell, out of its own portfolio, securities to the local commercial banks under the condition of a repurchase of these securities after a specified period of time, whenever the Bank thinks that liquidity conditions justify such action. A REPO may involve government securities issued by Curaçao, Sint Maarten and the former Netherlands Antilles, the Bank's CDs and foreign exchange (i.e., a swap).
The Bank will offer a yield on these transactions irrespective of the coupon rate or the market yield of the underlying security and depending only on the length of the period during which the commercial bank is the holder of the securities. The Bank will not sell securities, which fall due or have their coupon date during a repurchase period.
Securities of the government of Curaçao, the government of Sint Maarten and the former government of The Netherlands Antilles bought under this REPO-facility have to be reported under the Chart of Accounts items 1301 and 1302, respectively.
Outright sale of government securities
Whenever the Bank finds it appropriate, given monetary developments, government securities will be sold to commercial banks. The administrative procedures through which this takes place will be identical as in the case of the auction of CDs.
Two business days prior to the sale a subscription form, including the date of the tender, will be sent to each institution. On this form, an institution can indicate the nominal amount of government securities it wants to buy at various prices. The subscription form has to be returned (either by fax or by mail) to the Bank's Treasury Department before 12.00 PM of the working day prior to tender. At the closing of the tender the results will be announced and settlement will take place immediately. The announced results will include the allotted amount of government securities and the interest percentage. The resulting balance will be settled through the clearing account. Every change in an institution's account will result in a statement.
CENTRALE BANK VAN CURAÇAO EN SINT MAARTEN
(Central Bank)