Exchange Controls Relaxed
By Candia Dames, The Bahama Journal
Prime Minister Perry Christie is preparing to announce a mass relaxation of exchange controls, making it easier to convert Bahamian dollars into foreign currency for investment purposes.
The new decision by Mr. Christie and his government would make it "less onerous" for Bahamians to convert their dollars, a source in the Ministry of Finance told the Bahama Journal Monday.
He said the easing of the regulations are not expected to threaten the country's foreign reserves which stand at $450 million, about the same amount held at this period last year.
"We believe that these are measures which make the reserves a lot easier to use and navigate," said the source, who wished not to be named until Mr. Christie makes an official announcement. “If you don't have the money, you can't buy U.S. currency anyway."
The "important" changes will be a significant benefit that fulfils a campaign promise made by Mr. Christie.
The relaxation of exchange controls affects about 15 categories, including travel, education, support for family members living abroad, and medical expenses.
The new change would also affect Employee Stock Option Plans (ESOP).
In the past, Bahamian employees would have to buy stocks of the foreign companies they work for at premium, meaning that they had to pay an extra price for buying foreign currency for investment purposes.
"This new arrangement allows Bahamian employees to buy their entitlements at no additional costs," the source added.
There are other significant changes the Christie Government is making as it relates to exchange control.
In the past, a Bahamian or resident travelling could only get $1,000 in foreign currency, per person, per trip.
That amount is to be significantly increased to $10,000.
Families who sent money via Western Union and other money transfer services will also find it easier to send their funds.
In the past, they would have had to visit the Central Bank for approval before sending the money. With the new changes, they would be able to send as much as $1,000 without Central Bank approval.
No independent Bahamian Government has ever made any significant changes to the exchange control regulations, which have been in place since before The Bahamas became independent, even though there was an easing about eight years ago.
"Exchange control became a convenient tool for successive governments to control the amount of local currency which Bahamians could export by way of capital expenditure," explained T. Baswell Donaldson, the first Bahamian Controller of Exchange and former Governor of The Central Bank of The Bahamas.
The average person's experience with exchange controls is normally dealing with transactions, which could be classified as current payments.
These types of payments refer to those things on which one spends money, but does not expect to realize any profit or any loss. Examples would include buying a car; spending money for education purposes; payment of professional fees and vacations.
For current payments, there are little or no restrictions on the amount of foreign currency one can get from a local bank.
But there are restrictions on capital investments outside The Bahamas. These are investments made with the expectation that the value of those investments will increase.
The new changes that the Government is expected to announce mainly affect current payments and has very little impact on capital investments, a source told The Bahama Journal.
Mr. Donaldson explained that tight restrictions on capital investments were put in place in order to preserve the reserves of the country, which is the "linchpin that allows the Bahamian dollar to remain on par with the U.S. dollar."
"I wouldn't remove the restrictions on capital outflow, because to do so, may have the effect of jeopardizing the value of the currency," Mr. Donaldson said.
So Bahamians and residents who do have foreign bank accounts still cannot convert their Bahamian dollars (without paying a premium) to make capital investments outside The Bahamas, which includes purchasing stocks, bonds, and real estate.
When the Bahamas joined the International Monetary Fund at independence in 1973, it agreed to freely allow current payments. The country cannot put restrictions on current payments without first going back to the IMF and showing to its satisfaction that there is a grave balance of payments problem.
The Government has said that it would, "Commission a study to determine the viability of phasing out our system of exchange control."
"The idea is, in many countries there is no limit," the source said. "So The Bahamas wants to get there. We want to be the same as in the United States and France ."
Exchange control was introduced during World War II by the United Kingdom in order to conserve foreign exchange so that Britain would be able to fund its war efforts.
The Bahamas inherited the exchange control regime from the UK . Those regulations have remained basically unchanged from the time the country adopted them when it was a colony.
At the time, The Bahamas was a part of the Sterling Area, which consisted of all of the British colonies and the former colonies. In order to be a part of this bloc, each colony's reserves had to be held in Sterling.
This meant that reserves could not be held in U.S. or Canadian dollars or in any other currency, other than Sterling . If one wanted to buy U.S. dollars, one had to use Sterling (Pounds).
Exchange Control, therefore, determined the amount of foreign currency that the British would allow its citizenry (including those in The Bahamas) to buy.