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.