Bahamas Exchange Controls
“[Bahamian Exchange Control” serves no purpose other than to enhance the power of government officials and let the central bank play games with the local currency.” — Economist Mark Skousken
Similar to communist countries, like Cuba, the Bahamas has strict exchange controls on its citizens, (and less so on foreigners as it is difficult to keep a leash on people who can easily leave the country).
According to the Bahamas Central Bank:
The Bahamian Government’s decision to continue to maintain Exchange Controls after the dissolution of the Sterling Area reflected a desire to ensure disciplined use of the country’s foreign currency reserves and to assist in its Balance of Payments. Such concerns were understandable given the structural character of the economy–a small, open, developing, export-oriented economy–whose export sector is dominated by tourism; the Government’s goal of economic diversification, and the funding requirements of such diversification. Tourism provided then, as it does now, most of the foreign exchange needed to play an important role in funding the import requirements of the economy and, in the absence of a strong agricultural and industrial base, there is high reliance on imports for consumption and capital development.
In this planning process, Exchange Control is used as a tool of economic and monetary policy, to:
- Preserve the country’s external reserves and safeguard the balance of payment
- Maintain the fixed rate parity of the Bahamian Dollar with the United States Dollar
- Control expansion in the money supply, as well as speculation in the Bahamian currency by non-residents
- Provide a statistical means of monitoring the inflows and outflows of foreign currency to/from The Bahamas
In the overall macro policy mix of tools available to the Bank in the management of the economy, therefore, the Exchange Control arrangements enable a clear differentiation between the domestic and offshore sectors.
If it sounds like fluff, it is because it is. Essentially what it says is that private Bahamians do the work in getting foreign currency, and then must fork over that money to stupid government statists who decide what is done with their money. The truth is that a government does not, cannot, and should not “plan” economic activities–those activities should be left to individuals in a free-market, i.e., entrepreneurs and capitalists. Government’s job is not to plan our lives — whether personal or economic — but to protect our rights so we can plan our own lives. All that is required of government is to protect individual rights, including property rights, which is precisely what the exchange control rules violate. Such laws should be abolished. If the government wants U.S. dollars for its activities it should purchase them on the free-market by providing value for them.
According to economist Mark Skousken,
…the Bahamas should adopt the U.S. dollar as its national currency…and it should do away with exchange controls. Panama has such a policy, with favorable consequences. The Bahamian dollar is on par with the U.S. dollar (though it sells at a discount in Miami), so the transition would not be difficult. The U.S. is the Bahamas’ major trading partner, and the vast majority of tourists come from the U.S. There are plenty of dollars circulating and really no need for Bahamian dollars.
Of course, adopting a U.S. dollar standard would eliminate the Bahamian government’s exchange control power, but there’s no reason for exchange controls anyway except as a counterproductive economic policy. Bahamians are virtually prohibited from investing outside the Bahamas (for example, investing in the stock market in the United States and other countries)–surely a silly policy that even Britain abolished several years ago. Why should the Bahamian government fear its own citizens investing in the United States–doesn’t that say something about the stability of its leaders? Besides, intelligent Bahamians already know how to circumvent the law. The exchange control law should be abolished. It serves no purpose other than to enhance the power of government officials and let the central bank play games with the local currency.
Business: Government Weakens Communist Style “Exchange Controls”
However, the government has decided to slightly loosen the noose somewhat on the Bahamian people — but not in principle as the government still wants to have the noose ready and in place in case it needs to tighten it.
From a PLP press release:
The government has relaxed exchange control restrictions to make it easier and cheaper for Bahamians to invest abroad and to further open the Bahamian economy, Minister of State for Finance James Smith announced at the Central Bank recently.
He referred to the changes “as new and improved” and said they further reflect the modernization of The Bahamas and the deepening and widening of the capital market, while providing increased access to Bahamian investments in both the local and foreign markets.
One of the key changes is the reduction by half of the premium that Bahamians have to pay when purchasing securities or making real estate investments overseas.
Under the old Exchange Control regime, a Bahamian wishing to invest abroad would buy investment currencies from the Central Bank and pay 25 percent of the investment as a premium. When liquidating the investment and seeking to bring his or her money back into the country, the investor would liquidate the investment at a rate of 20 percent.
“So, effectively, it was going to cost you an additional five percent to invest abroad,” Minister Smith explained.
But under the changes the premium bid has been slashed by half to 12.5 percent and the offer bid is now 10 percent.
Existing investors will be permitted until March 31, 2006 to liquidate, should they desire, their original capital investment through the investment currency market at the old offer rate of 20 percent.
Minister Smith also announced that with immediate effect, residents may invest up to $25,000 per family unit, once every 10 years to purchase timeshare units abroad.
The government and the Central Bank anticipate that this measure will accommodate the growing interest of Bahamians in timeshare investments, and generally result in improved statistical information on these transactions.
The new changes will also allow Bahamians employed at offshore or foreign companies to make larger investments in employee stock option/share purchase plans.
Presently, residents employed by offshore and foreign owned institutions in The Bahamas are permitted, in the case of contributory stock options to invest up to $10,0000 per year at the official rate of exchange to purchase such options.
With immediate effect the investment limit is increased to $25,000 with amounts in excess of $25,000 per year to be purchased at the investment currency market rate, Minister Smith said.
He said this change will allow Bahamians to take further advantage of opportunities resulting from their employment, and to enjoy benefits equivalent to those available to their overseas counterparts.
Minister Smith also announced that with immediate effect, the maximum amount that a person may transfer out of the country when emigrating, i.e., taking up permanent residency abroad, is increased from the foreign currency equivalent of $125,000 to $250,000 per family unit at the official rate.
There are also certain changes that will affect temporary residents and permanent residents with restricted right to work in The Bahamas.
Temporary residents are now permitted to borrow up to a maximum of $50,000 for consumer related purposes.
This represents an increase from previous borrowing limits of $15,000 for the purchase of vehicles, and up to $6,000 for defraying local expenses.
Temporary residents who have resided and worked in The Bahamas for at least three years may obtain Bahamian dollar mortgage loans of up to $200,000 to finance owner occupied dwellings.
It was also announced that within prescribed limits and arrangements, resident investors, including individuals, pension funds and institutions, may invest in any company listed on a recognized stock exchange, by way of representative Bahamian dollar denominated securities listed on BISX.
BDRs are essentially instruments that allow Bahamians to buy in Bahamian dollars, stocks traded on overseas exchanges, the Central Bank explained.
It is intended that these BDRs be structured and marketed by local broker/dealers and other securities industry professionals in good standing with the Securities Commission.
Minister Smith said that within prescribed limits, equities of Bahamian companies listed on BISX may now be cross listed on principal CARICOM exchanges; and foreign companies listed on CARICOM exchanges may list issued and outstanding equity securities on BISX.
It was also announced that a maximum of $25 million per annum will be made available for overseas investments by the National Insurance Board.
Financial institutions and other private enterprises designated resident for Exchange Control purposes with no restrictions on their operations in The Bahamas may now investment, within specified limits, in debt and equity instruments of the private sector as well as public sector debt obligations, it was announced.
“We have to allow our economy to further integrate with the global economy and this is one way of doing that, but we have to do so in a measured and gradual fashion. We cannot just eliminate all of the exchange controls one time,” said Mrs. Craig.
Minister Smith, meanwhile, indicated that the relaxation of certain restrictions is a signal that the Bahamian economy is in a strong position at this time.
This is a step in the right direction — if that direction is the eventual repeal of all exchange controls in order to move the Bahamas toward a capitalist economy. Government’s job is to not manage the economy (i.e., destroy it), but to be more of an umpire that protects the rights of those who produce and trade — exchange controls are a clear violation of that right.
In a free country, the proper policy in regards to holding and keeping currency would be as follows: if you obtained your money (whether U.S. currency, or otherwise) morally, without violating the rights of others (that is, not through theft or fraud) you have the inalienable right to invest and dispose of your money — your property — as you wish (so long as you do not use it to violate the rights of others). Under a proper government, the laws would be set in place so that government officials would be forbidden — under the penalty of fines and imprisonment — from using police powers to control your money that you — and not they — worked for.
In other words in a free country exchange controls would not exist; because, economically they cripple the economy, politically they are a violation of individual rights, and morally as — an initiation of physical force — they are evil.