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Exchange Controls are a set of rules, regulations and procedures which govern all foreign currency transactions between residents of The Bahamas and residents of foreign countries, referred to as non-residents. They have their legal basis in the Exchange Control Act, 1952 and the Exchange Control Regulations, 1956 but their actual roots lie in the early economic and monetary relationship that existed between the United Kingdom and other British Commonwealth countries, including The Bahamas.

These countries had comprised an association of countries known as the Sterling Area, or Scheduled Territories, where the significant feature had been the common pooling (in London) of the gold and foreign currency reserves of the area. Members adopted common Exchange Control policies, to ensure that the reserves were protected and spent only in the interest of all concerned. This relationship though ended in 1972 with the dissolution of the Sterling Area, upon the British Government's decision to float Sterling and join the European Economic Community.

The Bahamian Government's decision to continue to maintain Exchange Controls after the dissolution of the Sterling Area reflected a desire to ensure disciplined use of the country's foreign currency reserves and to assist in its Balance of Payments. Such concerns were understandable given the structural character of the economy -- a small, open, developing, export-oriented economy--whose export sector is dominated by tourism; the Government's goal of economic diversification, and the funding requirements of such diversification. Tourism provided then, as it does now, most of the foreign exchange needed to fund the import requirements of the economy as the absence of a strong agricultural and industrial base results in a high reliance on imports for consumption and capital development.

Exchange Control is therefore used as a tool of economic and monetary policy, to:

  • Preserve the country's external reserves and safeguard the balance of payments;
  • Maintain the fixed rate parity of the Bahamian Dollar with the United States Dollar;
  • Control expansion in the money supply, as well as speculation in the Bahamian currency by non-residents;
  • Provide a statistical means of monitoring the inflows and outflows of foreign currency to/from The Bahamas.

In the overall macro policy mix of tools available to the Bank in the management of the economy,the Exchange Control arrangements enable a clear differentiation between the domestic and offshore sectors.