The Central Bank’s reduction in the buying and selling rates for foreign currency will hopefully encourage the repatriation of Bahamian investments to The Bahamas, Chairman of the Clearing Banks Association Gowon Bowe said.
Bowe said the reduction in the rate not only alleviates the cost of foreign currency investment, but also incentivizes Bahamian investors to turn over on their investments.
“It is a part of the liberalization of our exchange control. Ultimately it will move to maybe not zero, but it certainly will move to where now at five percent plus the stamp tax it is a small amount, when you see you’re going to get paid back two and a half percent, when you repatriate the funds if you repatriate it, so it’s still keeping a reporting mechanism and incentive to bring money back so that you get back a portion of the premium you paid up-front,” he said in a recent interview with Guardian Business.
Last week the Central Bank announced that the public can purchase foreign exchange at a premium of five percent above the official rate, and on repatriation of the capital to The Bahamas, investors may convert their proceeds into local currency at a premium of 2.5 percent above the official rate.
However, foreign exchange transactions for investment currency are still subject to government stamp tax and other commercial bank charges that might apply, the regulator noted.
“I think ultimately the whole liberalization exercise is one that is being done in a more holistic manner, and so they are looking at various initiatives,” Bowe said.
“We’ve had changes in the authorized limits; we’ve had changes in what persons can send abroad and under what capacity, which was in the February communication, so ultimately the Central Bank is relaxing foreign exchange control in a structured manner.”
Bowe said while average Bahamians may wonder why they can’t take liberties with their own money and use it for what they wish, it’s imperative to appreciate the systematic approach the Central Bank is taking to relax exchange controls.
“We’ve operated under a foreign exchange control regime for the purposes of ensuring that the Bahamian dollar remains pegged to the U.S. dollar, and foreign exchange control is really only centered around ensuring that you have adequate reserves in foreign currency in order to meet Bahamian dollar obligations, so that, that one-for-one pegged is maintained. So, we live the benefit of foreign exchange control because we can walk into a store and swap a Bahamian dollar for a U.S. dollar,” he said.
“When you say relinquish that, it has to be done in a manner that ensures there’s not going to be a depletion of reserves, because in that manner then you run into a situation like a Jamaica and other Caribbean countries that have a floating currency, where it is then going to be based on a demand for your currency; and let’s be very practical — outside of The Bahamas who has a demand for Bahamian dollars?”