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Transfer of Investment Currency Market Transactions to Commercial Banks

Published: Wednesday December 12th, 2018

Transfer of Investment Currency Market Transactions to Commercial Banks

The General Framework

Effective 1 January 2019, the Central Bank will cease to buy or sell investment currency directly from/to the investing public. Instead, such transactions will be executed through Authorised Dealers (commercial banks). The new Investment Currency Market (ICM) framework will transfer a portion of the premium on sales to commercial banks, while retaining full liability for premium on ICM redemptions (capital repatriated to The Bahamas) with the Central Bank.

The Central Bank foreshadowed this reform to the ICM framework, in "Further Liberalisation of Administrative Arrangements and Policies on Exchange Controls on Current & Capital Account Transactions" published in January 2018.

Except where approval is granted by the Central Bank for investments to be funded at the official rate of B$1.000=US$1.00, the public must buy the required foreign exchange at a premium of 5% above the official rate. On repatriation of the capital to The Bahamas, investors may convert their proceeds into local currency at a premium of 2.5% above the official rate. However, profits and income associated with the repatriation must be converted at the official rate.

The investment currency market facilitates buying and selling of foreign securities by Bahamian residents such as equities and bonds and other capital market products. Direct ownership of real estate and business interests outside The Bahamas must also be channelled through the ICM when the investments value exceed the thresholds that can be funded at the official rate.

The ICM Process

Under the investment currency framework, on evidence of Exchange Control (EC) approval, commercial banks will be allowed to accommodate purchases and sales of investment currency with the public at the following rates:

  • Offer (sell): B$1.050=US$1.00
  • Bid (buy): B$1.025=US$1.00

The Central Bank will facilitate sales/redemption of investment currency from commercial banks on a net settlement basis as follows.

  • Offer (sell): B$1.035=US$1.00
  • Bid (buy): B$1.025=US$1.00

The investing public will continue to apply to the Central Bank to transact in investment currency. Approvals granted by the Bank will denote the following:

Identity of the investor and tracking number for the approval; Amount of capital approved for investment and subject to the ICM selling rate offered by commercial banks; If relevant, the amount of capital or proceeds eligible for redemption through commercial banks at the ICM bid rate, and amount of proceeds eligible for redemption at the official rate, if relevant; Nature of investment for which funds are required; and The total amount approved for the transaction Commercial banks will not vary the breakdown of the transaction from the amounts specified in the Central Bank's approval. For the investing public, foreign exchange transactions for investment currency are still subject to Government stamp tax and other commercial bank charges that might apply.

Exception to the Investment Currency Rates

Some transactions are not subject to the investment currency rates, but instead can be financed at the official rate. These include the following:

  • Securities purchased and marketed by Bahamas licensed broker dealers as depository receipts, under the aggregate annual limit that applies for broker dealers of $35 million, or up to 5% of the external reserves as at the end of the previous year.
  • Real estate for personal use or immediate family use, up to a value of $0.5 million.<.li>
  • Direct establishment of a business abroad (or in the international sector), or acquisition of similar business interests, where the investment would positively impact The Bahamas' balance of payments through generation of returns for repatriation to The Bahamas. An annual limit of $2 million per investor or entity applies; subject to an overall transactions cap of $10 million per investor group, every 3 years.

The full list of measures may be downloaded from the Central Bank's website. They should be reviewed in their entirety for information that would not be summarised in this press statement.