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Controller of Exchange

At end-December 2006, external reserves stood at $499.8 million. In millions of Bahamian dollars, the following shows how the country's stock of external reserves has varied over the years:

 

Year B$ Millions
1996 163.0
1997 219.5
1998 338.8
1999 404.0
2000 342.6
2001 312.4
2002 373.2
2003 484.3
2004 667.8
2005 578.8
2006 499.8

 

Given the structural character of the economy-- a small, open, services-based economy-- there is a high reliance on imports for consumption and capital development. The administration of exchange control ensures that the economy is able to meet its foreign exchange demands, through the disciplined use of the country's foreign currency reserves.

Upon establishment, the Central Bank was given a statutory mandate to ensure that external reserves are maintained at 50% of the value of total notes and coins in circulation and demand liabilities of the Bank; and for the most part, external reserves have been maintained comfortably above this statutory minimum.

Another indicator of foreign currency reserve capacity is the import cover, measured in weeks, which compares the level of external reserves to the value of imports of merchandise goods (excluding oil and including freight and insurance) over the corresponding period. By international convention, this ratio should fall no lower than 12 weeks.

By virtue of the fixed exchange rate and exchange controls, which limit the net foreign currency exposure that commercial banks are allowed to have in their local operations, the Central Bank acts as the reservoir for excess foreign currency flowing through the economy, and is obligated to meet any net shortfall that the system experiences.

The seasonal pattern of flows is such that the Bank acts as a net buyer of foreign exchange during the first half of each year and as a net seller during the second half. International quotations, obtained daily, are used to determine exchange rates between the Bahamian Dollar and foreign currencies, particularly for non-US currencies. The rates are communicated to the commercial banks, and become the basis of the rates at which those banks buy and sell foreign exchange from and to residents.

The Central Bank utilizes a part of its external reserves to maintain the local trade market in foreign-exchange currencies between itself, the Government, Public Corporations and the commercial banks. The excess of the reserves from the local market is invested on the international market in short-term deposits, foreign government securities and bonds.

Bahamian citizens who have or intend to take up permanent residence outside The Bahamas are required to 'formally emigrate' for Exchange Control purposes. Forms to assist in this process are available in the Exchange Control Department and must be completed in duplicate and supported by evidence that the applicant has been accepted as a permanent resident of another country (e.g. copy of Permanent Resident certificate or copy of Green Card for those living in the United States).

Real property transactions are governed by the International Persons Land Holdings Act, which is administered by the Investments Board in the Office of The Prime Minister. However, the non-resident who invests in real property must register their investment with the Exchange Control Department. The term given to this registration is 'Approved Investment Status'. Approved Investment Status guarantees non-resident investors that they will be permitted to repatriate, upon application, income derived from the sale of any real property or any income received therefrom (e.g. rental income). The investor must produce documentary evidence, to the satisfaction of the Exchange Control Department, in support of the investment.

Non-Bahamians employed in The Bahamas under formal Government contract or valid work permit (temporary residents) are permitted, with the prior permission of the Central Bank, to remit up to 50% of their income abroad to meet their foreign currency obligations. In support of their application to do so, they must also provide a letter confirming their annual salary along with a copy of the permit/contract under which they are employed in The Bahamas.

Persons regarded as non-resident for Exchange Control purposes are not normally permitted to borrow Bahamian dollars. Bahamian incorporated companies with non-resident ownership are expected to borrow in foreign currency, proportionate to the equity interest in the company. Such companies however may, with the prior approval of the Central Bank, borrow in Bahamian dollars for non-capital related items.

The prior approval of the Exchange Control Department is required to remit foreign currency to any individual studying abroad. Application in respect of it must be accompanied by documentary evidence confirming the enrolment of the student abroad (i.e. a copy of a letter of acceptance or I-20 form for U.S. based schools). However, persons regarded as resident for Exchange Control purposes may remit, without limit, foreign currency to educational institutions abroad upon presentation to an Authorised Dealer (Commercial Bank) of documentary evidence confirming the student's enrolment abroad.

Yes, Bahamians are permitted to invest in financial securities abroad, but they must purchase the foreign currency required to make such investments through the medium of the Investment Currency Market. The Banking Department of the Central Bank operates the market in investment dollars.

Established in 1972, the Investment Currency Market was prescribed for the purchase of foreign currency securities from non-residents and direct investments outside The Bahamas. In late 1989, the Bank assumed responsibility for the administration of the ICM, which at the time was almost illiquid.

From the Central Bank's perspective, investment currency bid and offer transactions attract a premium of 10% and 12.5%, respectively vis-a-vis 6.75% and 13.0% in 1974. This means, therefore, that a resident who wants to purchase foreign currency securities today may acquire them by purchasing investment currency from the Investment Currency Market at a premium of 12.5%. If they were to sell the proceeds of the securities as investment currency, they would realize a premium of 10%.

Entities resident for Exchange Control purposes (e.g. Bahamians and permanent residents without restrictions on employment or companies which they own) require the prior permission of the Exchange Control Department of the Central Bank, to operate foreign currency accounts. Such individuals are usually excluded from maintaining such accounts. However, the companies in which they have an equity interest may qualify to operate foreign currency accounts.