By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Central Bank last night dismissed suggestions that the Bahamian dollar faces a devaluation threat, pointing out that foreign currency reserves were “well above” global benchmarks at more than $1 billion.
John Rolle, its governor, reassured that the one:one peg with the US dollar was under “no imminent or medium-term threat of devaluation”, with pressures on the foreign exchange regime also absent.
He added that the Central Bank possessed sufficient foreign currency reserves to support the Bahamian dollar’s value, with its ability to regulate demand for overseas currencies providing another layer of protection.
“A predicate to any pressure on the currency is for the foreign reserves to be threatened with depletion,” Mr Rolle said.
“As of today’s date, the Central Bank’s holdings of international reserves are still in excess of $1 billion - well above the international benchmark of 12 weeks of total import cover - which reflects stronger reserves growth in the first half of 2016 than in the corresponding period of 2015.
“Although the Bank expects the normal seasonal drawdown in reserves over the rest of the year, balances are still expected to settle at a year-end position that are stable to slightly improved when compared to December 2015,” he added.
“In the present circumstances, the Bank remains well equipped to defend the Bahamian dollar, and any forced float or devaluation would not benefit the economy. It is well within the Bahamas’ means of being avoided over the medium-term.”
Mr Rolle was responding to Robert Myers, a principal with newly-formed civil society group, the Organisation for Responsible Governance (ORG), who warned in Wednesday’s Tribune Business that devaluation was “not a question of if; it’s a question of when” unless the Bahamas changed its economic and political course.
Devaluation of the Bahamian dollar would be a disaster for an economy that consumes virtually all it imports, as the living standards of Bahamian consumers and households would be drastically slashed.
With reduced purchasing power versus the US dollar, businesses and households would be unable to afford many of the necessities and products taken for granted - at least in the same quantities. And the cost of education and holidays abroad would rise dramatically.
However, Mr Rolle refuted any devaluation concerns, saying: “Adequate support and mechanisms remain in place to protect the value of the currency, despite conjectures about the impact of economic growth, fiscal consolidation prospects or governance institutions.
“The Bahamian dollar’s value continues to be supported by the foreign reserve holdings of the Central Bank, and the tools at the Bank’s disposal to regulate the demand for foreign exchange.
“These include the monitoring of the system permitted under the exchange control regime, as well as direct means to ensure that domestic credit expansion does not fuel greater demand for foreign exchange than the system can accommodate.”
Mr Rolle said Bahamian businesses and individuals would continue to have “comfortable access” to foreign currency for their international transactions, adding that tourism, exports and foreign direct investment (FDI) - together with the Central Bank’s credit policies - would ensure the system’s import sustainability would endure.
“The capacity to further boost the reserves, or to support more robust import financing, remains contingent on strengthening medium-term growth prospects and, by extension, on the enabling policies that can improve the base of private sector activities,” the Governor added.
“In such a context, the Central Bank’s ability to accommodate even stronger spending on imports would also be enhanced.
Mr Rolle said the Central Bank will continue to encourage “more informed dialogue” on the Bahamian dollar’s underpinnings, and on factors that would “prompt a review of whether an adjustment in the current fixed exchange rate regime is warranted”.
Comments
banker 8 years, 3 months ago
You gotta give John Rolle credit. He is slick.
Let's see what he says. (1) one:one peg with the US dollar was under “no imminent or medium-term threat of devaluation There is NO imminent (meaning short term), or medium term threat to devaluation. Meaning that the dollar won't be devalued tomorrow. I would like to know his definition of medium term -- is 1/4 or 1/2 a year? In banking circles long term means more than a year. He does NOT rule out devaluation in the long term.
Item (2) As of today’s date, the Central Bank’s holdings of international reserves are still in excess of $1 billion, well above the international benchmark of 12 weeks of total import cover
Look at the words -- "at of today's date". That is key. Later on he states that the position will deteriorate, as a normal seasonal draw down. The central bank's own website states: "The seasonal pattern of flows is such that the Bank acts as a net buyer of foreign exchange during the first half of each year and as a net seller during the second half." Then he says that he expects a "stable" level, meaning not losing more reserves than they had last year. Then he trots out the old optimistic chestnut that they expect to have less of a draw-down and more reserves. This entire argument, is like the fella who fell off the the Empire State Building. As he passed the windows of each floor, folks inside could hear him say -- "So far, so good!" That is what Rolle is saying. We will finish with enough reserves if the economy stays exactly the same as it is now. If it deteriorates - ???
Point (3). Interestingly he mentions the 12 weeks of total import cover. What that means, is that we must have enough money so that if the tourism money tap were shut off, or we were hit with a hurricane, we would need 12 weeks worth of money to pay for everything that we need -- food, gas, including cooking gas -everything. Why does Rolle mention that? Because the 12 week import cover is the one international reserve standard that cannot be ignored for devaluation. If we have less than that amount, then an automatic devaluation takes place.
Rolle quickly points out that we have enough money for 12 weeks now, but we are expecting a draw-down until tourist money starts flowing at the end of year when it gets cold in Canada and the US. If they start going to Cuba or elsewhere -- well that's a doomsday scenario.
And the last item is that Rolle says that they are ready to defend the Bahamian dollar. How? If the reserves suddenly go way down, then the Central Bank will borrow enough to prop up them up. But what happens if we are degraded to junk status by Moodys? Rolle will be left without a weapon to defend the dollar. He will be like Christie who goes into a battle of wits unarmed and batsh&t crazy.
So, rest comfortably ye merry Bahamalanders. Your dollar is good until Christmas. After that -- no guarantees.
bogart 8 years, 3 months ago
The Central Bank cannot correct the shortfalls of the Bank of the Bahamas the own govt bank. Investigations needed by independent body. Foreign investments which bring needed US currency into the Bahamas are down. Investors complain of getting the short end of the stick. Difficulty in doing business no foreign US currency brought in by tourists who cannot stay at the Baha Mar, crime warning deterring tourists from spending US, millions being taken out by foreign expats working here and no worry?
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