the foreign exchange constraint on monetary policy : the bahamian context remarks by governor john a rolle1 forum on the past, present and future of monetary and fiscal policy the government and policy institute university of the bahamas harry c moore library 20 november 2018. good evening. it is a pleasure for me to bring opening remarks for this distinguished panel of past central bank governors, all of whom i know and have worked with in some professional capacity. 2 the common theme in these professional encounters was the appreciation of the scope for which monetary policy could be effective in either a bahamian or caribbean setting ; what contributed to making policy effective ; and the understanding of what constrained policy makers. in the bahamas, we have a commitment to maintain a fixed exchange rate, at one to one against the us dollar. the exchange rate peg is supported by the foreign reserves of the central bank. by law, the currency liabilities of the bank must be matched, at all times, by at least half the equivalent amount of foreign reserves. at present, the central bank tries to target this coverage in the range of 90 % to 100 %. as prepared for delivery. i was introduced to sir william allen in 1988 in my first tour as a summer intern at the central bank of the bahamas. after governor james smith joined the bank, i remember detailed comments he provided on a policy paper i wrote about options for monetary integration in the caribbean. those comments are still relevant today. during governor julian francis ’ tenure, i interacted on many occasions with him about adjustments to exchange controls and monetary policy, including policies which we embraced in the immediate aftermath of the september 11, 2001, terrorist attacks on the us. in fact, governor francis ’ queries motivated most of my research on dollarisation and exchange control liberalisation. governor wendy craigg and i have had the longest relationship of all, as she managed the research department, where my central bank career began, and we both attended regional conferences, where i present papers on the pressing monetary policy themes facing the caribbean. for the peg to be credible, the bank must always be able to supply foreign exchange at the guaranteed rate. under our exchange control regime, this guarantee is binding for all trade and current account transactions. 3 to ensure credible access to foreign exchange, the bank seeks to balance inflows, principally from export earnings against demand stimulated outflows from income, drawdown of savings and domestic credit financed activities. the lever most controlled by the bank is domestic credit. it is focused

- requisite to open an account. not all banks have converged to these new standards, but we are actively pursuing this transition. the next easing, which the central bank undertook was to remove exchange control restrictions from non - resident access to bahamian dollar ( b $ ) deposit facilities. irrespective of their immigration or work permit status these persons can open and maintain b $ deposit accounts with balances of up to $ 50, 000 without approval from the central bank. as part of the get money smart financial literacy program, and working with commercial banks we are formulating a new public education campaign focused on these changes. the literacy campaign the guidelines ( see : https : / / www. centralbankbahamas. com / legal _ policies. php? cmd = view & id = 16883 ), which apply to entities supervised by the central bank : banks, credit unions, mtbs and payment services providers. these have been issued under provision in the amended financial transactions reporting act 2018. in the aml guidance notes these would be accounts that carry $ 500 or less and for which the monthly reload capacity is $ 300 or less. monitoring of transactions for aml purposes, still applies for all accounts which financial institutions maintain. where higher risks are assessed supervised institutions may also invoked processes that go beyond identification, such as verification of sources of income or wealth. 3 | page will also provide more education on cyber security, to increase public comfort and acceptance around the use of digital financial products. near - term priorities there are necessary further reforms that the central bank will target in the near - term. under the payment system act, the bank will propose new regulations to strengthen consumer protection, along evolving best international standards. these would apply to savings and checking accounts ; debit and credit cards, and to stored value products, where the common thread is the actual or potential use of such facilities to effect payments. the central bank will also promote direct participation of credit unions and non - bank payment services providers in the payments and settlement system. this would apply to the retail clearing house ( the ach ) and to the wholesale rtgs. 9 the draft new central bank bill provides that all of these entities would be allowed to maintain settlement accounts with the central bank to clear payments. as the largest originators and recipients of payments, the public treasury and the national insurance board are being invited to become direct participants in the rtgs and ach systems. mechanisms will also be explored to determine how international