Restrictions on foreign exchange outflows to end on July 1

Noting that the negative impact of COVID-19 on foreign exchange has died down, The Central Bank of The Bahamas (CBOB) announced yesterday that the restrictions placed on foreign exchange outflows at the onset of the economic crisis will end on Thursday.

The bank said as of July 1 it will revert to a maximum of $5 million on both net long and short exposures, ending the long Bahamian dollar (B$) open position limit on foreign exchange transactions, which was implemented in April 2020.

The limit for other transactions at Tier 1 Capital commercial banks would be fixed at five percent.

“Inflows from tourism are projected to strengthen over the remainder of 2021 and during 2022. The Central Bank also announces that as of July 1st, 2021, the minimum B$ open position limit, which would apply to commercial banks with branch operation structures inside The Bahamas or with Tier 1 Capital of less than $20 million, has been increased to $1 million,” the bank revealed in a statement yesterday.

“This will afford such entities some increased flexibility in their foreign exchange trading activities. The B$ open position limit regulates commercial banks’ purchases and sales of foreign currency from the public. Transactions (sales to the public) which increase the net of B$ assets minus B$ liabilities by more than the open limit must be corrected by corresponding purchases of foreign exchange, either in the interbank market or from the Central Bank.

“Conversely, transactions (purchases from the public) which reduce the net of B$ assets minus B$ liabilities by more than the open limit must be corrected by corresponding sales of foreign exchange, either in the interbank market or to the Central Bank.”

The CBOB took the conservation measure to suspended the $5 million ceiling on long exposures last year in response to reduced foreign currency inflows as a result of the tourism industry shutdown. It required banks to supply larger quantities of foreign exchange from their internal resources, before replenishing supplies through the Central Bank. The restrictions resulted in an estimated $400 million in claims on the reserves, Central Bank Governor John Rolle revealed earlier this year.

“The collective measures in our estimation would have provided a cushion in the reserves of between $350 million to $500 million depending on how you estimate it. So the impact was real in terms of providing a cushion,” he said last month.

The post Restrictions on foreign exchange outflows to end on July 1 appeared first on The Nassau Guardian.

source https://thenassauguardian.com/restrictions-on-foreign-exchange-outflows-to-end-on-july-1/