The Central Bank, as a matter of policy, does not permit the use of the official market to purchase foreign currency securities or real estate abroad. Instead, it maintains a market in investment currency, prescribed for facilitating direct investment and foreign currency securities acquisitions outside of The Bahamas.
The market has its origins in the United Kingdom after World War II, but was established in The Bahamas in June 1972, after the United Kingdom abolished the Sterling Area. Until June 1972, investment currency transactions involving Bahamian residents were funded using the main pool of investment currency for the Sterling Area out of sale by the United Kingdom Treasury of resident holdings of foreign currency securities, which had been sequestered shortly after the War commenced.
The Investment Currency Market in The Bahamas has undergone several changes since 1972. The pool was initially managed by several dealers, led by National Westminster Bank, and funded by proceeds from the sale of Bahamian-owned foreign currency securities, which had originally been purchased using the United Kingdom's or The Bahamas' pool of foreign exchange. However, the Central Bank commenced support of the market from its own foreign exchange reserves in 1986, providing a total of $840,000 between 1986-1989.
In late 1989, the Bank assumed responsibility for the administration of the market, which was almost illiquid. Currently, from the Central Bank’s perspective, the investment currency bid and offer transactions attract a premium of 10.0% and 12.5%, respectively, vis-à-vis 20.0% and 25.0% in 1987. 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%. Sales of the proceeds of the securities, through the investment currency market, attract a premium of 10%.
The Investment Currency Market, which opened 2006 with a balance of $2,701,479.51, recorded purchases of $3,289,038.67 and sales of $328,182.31, resulting in a closing balance of $5,662,335.93 at end-December, 2006.