Micronesia, Federated States of - Banking and securities

Commercial banking operations are regulated by the FSM Banking Board. There are two foreign commercial banks: the Bank of Hawaii, with branches in Pohnpei, Yap and Kosrae; and the Bank of Guam, with branches in Pohnpei and Truk. There is also a domestic Bank of the FSM that operates branches throughout the islands. The FSM Development Bank commenced operations in 1982. It provides loans for projects that meet criteria based on the government's development priorities and is authorized to provide loan guarantees to other financial institutions in the FSM. However, it can only make loans of up to $200,000 because of capital limitations. The FSM Employees Credit Union was chartered in 1986. Tradable securities are not issued by the FSM government, state governments, or enterprises residing in the FSM. The currency is the US dollar.

In 1996, national and state governments considered measures designed to cope with the winding down of US funding under the Compact of Free Association (payments scheduled to end in 2001). The restructuring of national government is now underway, with the aim of reducing the number of employees and departments. The government is also seeking to improve basic infrastructure through private-sector investment; infrastructure improvements should in turn encourage growth of the private sector. In 1999, the FSM Trust Fund was established to foster financial independence. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $21.2 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $115.3 million.