Monetary Policy in The Bahamas

Overview of the Financial Services Sector

By standards of developing countries, the financial sector of The Bahamas is highly developed and dynamic, providing a wide array of services by several types of intermediaries. Apart from the Central Bank of The Bahamas, and the Financial Intelligence Unit (FIU, December 2000), the sector consists of commercial banks, savings banks, trust companies, offshore banks, insurance companies, a development bank, a publicly controlled pension fund, a housing corporation, a public savings bank, private pension funds, cooperative societies and credit unions.

Although financial intermediation is dominated by commercial banks, the insurance industry and the numerous private pension schemes, which constitute the institutional investor base, mobilize a sizeable pool of long-term investment resources for economic growth. Credit unions are also gaining in importance and statutory bodies, such as The Bahamas Mortgage Corporation, The Bahamas Development Bank and the National Insurance Board, perform an integral role in the mobilization and intermediation of funds in The Bahamas. Capital and money market activities received a significant boost in 2000, with the introduction of The Bahamas International Securities Exchange (BISX), which operates alongside the informal over-the-counter exchange of public sector bonds and bills, which is administered through the Central Bank.

As a mature and sophisticated financial centre, the array of financial services in The Bahamas also includes international business companies (IBC), mutual funds, and insurances services. The IBC is a flexible form of corporate vehicle governed by the International Business Companies Act, 2000, which superseded the existing 1989 IBC Act and made significant changes to the operation of the vehicle. IBCs can only be incorporated by a bank or trust company - which is regulated by the Central Bank - or a person licensed under the Financial and Corporate Services Providers Act, 2000. Mutual Funds operating in The Bahamas take the form of either managed investment companies with shares, or trusts with units representing ownership. Mutual Funds are regulated by the Mutual Funds Act, 1995 and the Mutual Funds Regulations, 1995 with oversight and supervision by the Securities Commission of The Bahamas.

A significant number of insurance companies are also registered to operate in or from within The Bahamas. While many of these insurance companies service the domestic risk needs of The Bahamas, a number were also established to insure risks situated elsewhere in the world. The current legislative regime governing the insurance sector includes the Insurance Act, 1969, as amended; the Insurance (Registration) Regulations 1970, as amended; the Non-Resident Insurer (Exemption) Regulations 1978; the External Insurance Act, 1983 and the External Insurance Regulation 1984. Oversight and supervision is exercised by the Registrar of Insurance.

By mandate, the Central Bank of The Bahamas assumed a critical role in economic management, particularly balance of payments stability and the preservation of the value of the Bahamian currency. Over time, monetary policy tools have been fine-tuned, in keeping with changes in the domestic sector, focusing in this regard on credit controls and liquidity management.

Monetary Policy