Central Bank will resume foreign currency purchasing facilities next month

The Central Bank of The Bahamas (CBOB) will reinstate its Bahamian Depository Receipts program (BDR) and the approval of applications to purchase foreign currency through the Investment Currency Market (ICM) to fund external portfolio and capital investments beginning the first of October, the bank said in a statement yesterday, marking the return of these two instruments after they were stopped for almost a year and a half.

The CBOB stopped the BDR and ICM to protect the country’s external reserves, as the main supplier of The Bahamas’ foreign currency, tourism, stopped at the onset of the COVID-19 pandemic.

The CBOB issued a statement May 4, 2020, suspending access to those two facilities.

Now, with tourism open and the country accessing foreign currency through several means, the banks will return access to foreign currency in earnest next month.

“Participants in the BDR program are advised that access will be prorated to the fourth quarter of 2021,” yesterday’s statement said.

“Annual access limits will again apply beginning 1st January, 2022. The public is reminded that all applications to purchase foreign currency via the ICM should be submitted to the Exchange Control Department via email at: ecd@centralbankbahamas.com.

“All applications must include a completed ‘ICM Purchase/Redemption Form’ accompanied by the relevant supporting documentation indicated on the form.”

The CBOB said in a statement it issued one week ago that it intends to use the approximately US$247.5 million from the International Monetary Fund’s (IMF) recent general allocation of special drawing rights (SDRs) to strengthen the country’s foreign reserves.

The IMF general SDR allocation, which became effective on August 23, was equivalent to about $650 billion and made available to all 190 of its member countries to address the long-term global need for reserves and to particularly help vulnerable countries struggling to cope with the impact of the COVID-19 crisis.

The Bahamas was allocated $174.8 million in SDRs, which converts to about US$247.5 million and would attract a 0.05 percent interest rate, which is the weighted average of the short-term interest rates on government debt of the countries and regions eligible for the SDRs.

According to the CBOB, the ICM and BDR programs “facilitate residents’ purchase of foreign securities and, to some extent, foreign real estate, provided application is made to the Central Bank and approved”.

The statement the bank issued yesterday explained that annually, about five percent of the country’s external reserves, not exceeding $35 million, is allocated to the participating broker/dealers.

“ICM operations are delegated, to a significant extent, to commercial banks,” the statement said.

“Residents are permitted to buy and sell foreign exchange through the market at the respective premiums of 5.0 percent and 2.5 percent above the official rate of B$1.00 = US$1.00.

“The BDR program grants access at the official rate, allowing publicly traded foreign securities to be listed through depository receipts on the Bahamas International Securities Exchange (BISX). Residents acquire B$ interest in the receipts while sponsoring broker/dealers are authorized to conclude the external side of the transactions.”

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