John A Rolle: The path to exchange control liberalisation - completing the journey in one piece

Remarks by Mr John A Rolle, Governor of the Central Bank of The Bahamas, at the Bahamas Business Outlook 2018, Nassau, 18 January 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

A special thanks to the Counsellors for inviting me to make this presentation on exchange control liberalisation. I intend to keep the focus narrowed to issues related to capital and investment flows, as these are the areas where policies and administrative practices have the most substantive impact. Rather than argue that The Bahamas should resist liberalisation, I would instead like to convince you that we should make more credible preparations to do so-but in a stable fashion. I would also like to convince you that some of the roadblocks to liberalisation are matters related to our national investment policy regime, which defines the limits of property rights enforcements for those who might otherwise, already be able to circumvent the exchange control regulations. Finally, there is the question of dollarization, and whether this option would allow The Bahamas to speed up the process of liberalisation. 

Purpose and scope of exchange controls

The system of exchange controls, and the monetary policy tools available to the Central Bank are to ensure that The Bahamas is able to maintain the fixed exchange rate, with B$1.00 = US1.00. The parity with the US currency provides a necessary convenience for tourism, which is mostly transacted in US dollars and mostly with US clientele. The fixed exchange rate has also provided a stable anchor for domestic inflation, which has closely mirrored the inflation rate in the United States. This is an achievement almost unrivalled in independent countries in Latin America and the Caribbean, or in most developing countries.  It should also not be so quickly discounted given the importance of stable inflation expectations in the medium and long-term decision making processes of the private sector-- whether it is about investments, savings or wage negotiations.