Since 1966, the Bahamian dollar has been pegged to the US dollar at a 1:1 value. Having a fixed peg relationship with a country, also known as an “anchoring currency choice” almost always comes with more trading between the two countries. In the case of The Bahamas, the choice of the peg reflected geographic proximity, the already existing trade between the two countries and the desire for increased trade in tourism and investment. This fixed exchange rate regime has served The Bahamas very well and is generally believed to play a significant role in The Bahamas having the highest per capita income in the hemisphere, of any independent country, outside of the U.S and Canada. The Bahamas does not have a significant manufacturing base, but rather offer services, namely in the tourism and financial services sectors. Having a 1:1 peg between BSD and USD encourages this trade in services between the US and the Bahamas. In addition, the standing Peg serves to provide comfort and security to those looking to invest in the country and significantly boosts foreign direct investment.
