The Central Bank of Belize is responsible for monetary policy, which includes maintaining a stable exchange rate and promoting credit and exchange conditions that encourage growth in the Belizean economy. Within the context of the economic policy of the government, the Central Bank of Belize is responsible for the formulation and implementation of monetary policy. The Bank’s monetary policy objectives are legislated in the Central Bank of Belize Act that took effect on 1 January 1982 and are to:
- Foster monetary stability, especially stability of the exchange rate
- Promote credit and exchange conditions conducive to the growth of the economy of Belize
- Since May 1976, Belize has maintained a fixed exchange rate of BZ$2.00 to US$1.00.
The fixed exchange rate is a cornerstone of macroeconomic stability, anchors inflation expectations and affords a stable environment for investment decisions. To preserve the peg to the US dollar, the Bank is required to maintain external assets of at least 40.0% of its domestic liabilities and manage credit growth to ensure that the savings/investment balances of the public and private sectors are at sustainable levels so that the resulting import consumption does not put undue pressure on official reserves.
As a small, open economy, sharp increases in domestic credit inevitably spill over into the external sector through an increased demand for imports and the hard currency (US dollar) needed to purchase such imports. Since commercial banks dominate lending in the financial system, monetary policy targets commercial banks’ liquidity through the Bank’s management of the monetary base (reserve balances). Adjustments in the monetary base, particularly through the manipulation of reserve requirements (a major instrument of monetary policy), affect credit growth, interest rates and the level of money supply.