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Aerial view of Atlantis Paradise Island, off the coast of Nassau, The Bahamas. (Photo: Sports Illustrated)

Bahamas central bank to bolster foreign exchange

Aerial view of Atlantis Paradise Island, off the coast of Nassau, The Bahamas. (Photo: Sports Illustrated)

The Central Bank of The Bahamas (CBOB) has implemented a series of measures to shore up the country’s foreign reserves.

The measures include immediately halting resident access to foreign exchange for international capital market investments as it seeks

Bank Governor, John Rolle, told reporters that suspension of dividend payments for local commercial banks and a relaxation in how banks are able to trade foreign currency should provide in excess of a US$300 million buffer

First, until a recovery is entrenched, resident access to foreign exchange for international capital market investments through Bahamas depository receipts and the Investment Currency Market has been suspended.

“…we are confident that The Bahamas has the tools needed to preserve the reserves within a comfortable level, so there should be no concern.”

– Bahamas Central Bank Governor, John Rolle

“That is, Bahamians are still urged to maintain their investment behaviour and to take advantage of local opportunities until external access is restored,” Rolle said told reporters during the Central Bank’s quarterly economic briefing.

“Second, the Central Bank has suspended approval of dividend payments for commercial banks. This has the dual effect of keeping buffers in place for an expected increase in credit losses and halting remittances abroad.

“Third, commercial banks have been given a more relaxed margin within which to sell foreign exchange to the public, before they are able to draw on the Central Bank’s foreign reserves to make sales to the public.”

Rolle said that the fourth measure, in keeping with the principle of viewing the National Insurance Board’s (NIB) foreign investments as an extended support for the foreign reserves, the Central Bank has requested the NIB to liquidate some of its external investments and bring the proceeds back onshore.

Foreign reserves are currently hovering at just above two billion dollars and expected to decline by at least 50 per cent by the end of the year.

Rolle said that the US$300 million buffer assumes that foreign exchange is not being diverted and used along with other consumptions within the economy.

“So when we do our overall outlook of the reserves, we assume that all of these measures have been in place and contributing to the usage of foreign exchange in the economy. But collectively between the four sets of measures that I’ve mentioned, we’re looking at in excess of $300 million in buffers provided for foreign exchange,” he said.

Governor of the Bahamas central bank, John Rolle

But he told reporters that the reserves remain at healthy levels and that as businesses start to operate again following the coronavirus (COVID-19) pandemic lock down, the reserves will begin to see some reduction.

“But that is qualified by saying that we look at the level relative to the tools that we have to manage the use of foreign exchange and therefore we are confident that The Bahamas has the tools needed to preserve the reserves within a comfortable level, so there should be no concern.

“But we should expect that if the contracted nature of the slowdown in the economy endures for very long, the measures would have to become more and more restrictive to keep the reserves at comfortable levels,” he added.