By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior Central Bank executive yesterday asserted that The Bahamas is “well protected” by its fixed exchange rate peg to the US dollar despite fears that the latter may depreciate due to inflation and trade wars.

Allan Wright, the monetary policy regulator’s manager of research, told a conference staged by the University of The Bahamas (UoB) that the one:one currency peg is “the best place to be... right now” even amid concerns over the global fall-out if Donald Trump makes good on threats to impose more tariffs on US imports.

While the impact of all this on the US currency and inflation remains uncertain, Mr Wright argued that The Bahamas is “well protected”. Setting out the backdrop, he said: “What is going to happen to the Bahamian dollar if there are huge tariffs between the US and its major trading partners, and if there would be a depreciation in the already-accelerated or appreciated US dollar that you saw here?

“Will it have an overflow effect on the Bahamian economy? Will it lead to price increases? What will be the impact of these price increases and so forth? Well, I can say with as much confidence as I can see at this moment right now: That is not a situation that this economy faces at this moment - not in the near-term nor the medium-term.”

Mr Wright continued: “The impact of tariffs, the impact on inflation, the depreciation of the US dollar or the losing of its value and the overflow on the Bahamian dollar... what the impact would be on inflation we are uncertain to say with all the estimates that we may have.

“Some people say that estimates can be as low as an increase of inflation of somewhere like 0.5 percent to where it could lead to high levels of inflation. Currently we have inflation in The Bahamas measured last year under 1 percent. The United States is somewhere about 2 percent. So you can see by maintaining a peg, or having a fixed exchange rate, there are benefits to having that in the Bahamian economy.

“The economy is therefore well protected on that side. There are obviously other issues because, by maintaining a peg, you limit the monetary policy that you can use, and you therefore try to support this reserve and this peg by other methods, primarily the complement of fiscal policies and other macro tools,” he said.

“And that’s being done; maintaining the deficit at a low level or a manageable level so you don’t go outside and borrow money in US dollars [at] higher interest rates, and therefore cause your payments to go up and, at the same point in time, cause the lower effects in terms of private sector market and so forth. So all of that has to be taken into consideration.

“So there are huge benefits. There are still concerns. But all in all I would say the best place to be is where you are right now where the Bahamian dollar is pegged to the US dollar. It is still the international currency, that’s the US dollar, and therefore being associated with it, you are in a strong position. Bahamians are in a strong position and the economy is still in a relatively strong position.”

Mr Wright said The Bahamas ended 2024 with $2.6bn in external reserves. “That is, by international standards at least two or maybe at least 150 percent higher than international levels in terms of international standard settings for if you’re having a peg and holding currency to maintain that peg in relation to that,” he added.

“So that $2.6bn, you’re looking at about seven months of supply in terms of goods, import goods, merchandise goods coming into the country. International standards, as I was trying to indicate, is normally at about maybe 108, 120 days.”