WILLEMSTAD – Curaçao and Sint Maarten’s fixed exchange rate system provides monetary stability, but it also means the countries have limited room to use their currency to absorb economic shocks, making adequate foreign exchange reserves crucial to protecting the Caribbean guilder.
This relationship is highlighted in a working paper by researchers Robert Hieroms and Raïna Hieroms of the Centrale Bank van Curaçao en Sint Maarten (CBCS).
The Caribbean guilder, introduced on March 31, 2025, replaced the Netherlands Antillean guilder on a one-to-one basis while maintaining the existing peg to the U.S. dollar. The exchange rate is fixed at Cg 1.79 per U.S. dollar.
That arrangement means Curaçao and Sint Maarten do not have a freely fluctuating currency that can appreciate or depreciate in response to changing economic circumstances.
Instead, international developments can affect the countries through trade, tourism, capital flows and ultimately the balance of payments and foreign reserves.
The CBCS maintains an operational target of official reserves sufficient to cover at least three months of merchandise imports. Maintaining adequate reserves is essential to safeguard confidence in the dollar peg.
The study explains that the fixed exchange rate also constrains monetary policy autonomy. The central bank must maintain sufficient official reserves to defend the peg, meaning developments in the balance of payments directly affect the room available for domestic monetary policy.
A current account deficit, for example, can lead to a decline in official reserves when it is not sufficiently compensated by money entering through the capital and financial account.
Exchange-rate developments involving other major currencies can still have substantial consequences even though the Caribbean guilder itself remains fixed against the dollar.
When the euro weakens against the U.S. dollar, it automatically weakens against the Caribbean guilder. Curaçao consequently becomes more expensive for European tourists. When the euro strengthens, European goods become more expensive for Curaçao importers.
The mechanism became particularly visible in 2022, when the euro depreciated sharply against the U.S. dollar amid the economic consequences of the war in Ukraine and differences between U.S. Federal Reserve and European Central Bank monetary policy.
For small, open economies such as Curaçao and Sint Maarten, the findings underline why foreign reserves, the current account and the balance of payments are closely connected to the stability of the monetary system.
The fixed exchange rate offers businesses and consumers predictability against the U.S. dollar, but maintaining that stability requires sufficient reserves and economic policies capable of dealing with shocks that cannot simply be absorbed through changes in the value of the domestic currency.