By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A multi-billion dollar “currency swap” with the US Federal Reserve would provide The Bahamas with the necessary foreign currency to recover from the COVID-19 crisis, it has been advocated.
Dr Johnathan Rodgers, the well-known “eye doctor”, writing HERE in Tribune Business today, argues that The Bahamas would merely be following other countries by agreeing to exchange Bahamian for US dollars with the American Central Bank.
While the Bahamian dollar is a non-convertible currency, Dr Rodgers suggests these holdings could be recycled and used to acquire loss-making state-owned enterprises (SOEs) such as Bahamasair and Bahamas Power & Light (BPL). He added that “the ultimate goal” would be turning them into profitable, efficient operations in which Bahamian investors also have equity ownership.
Dr Rodgers says the government has no choice but to “take some unconventional and creative steps” when it comes to rescuing the Bahamian economy from the COVID-19 fall-out due to its own high debt levels, the costs associated with further local and foreign currency borrowing, and the need to maintain the fixed exchange rate peg with the US dollar.
“It is imperative that the government find a source of inexpensive US dollars,” he argues. “In my opinion, the cheapest and most readily available source of such US dollar funding would be through means of a currency swap between the US Federal Reserve and the Central Bank of the Bahamas.
“Over the past two weeks, Central Banks in numerous countries have entered into similar arrangements with the Federal Reserve. Such a currency swap would involve the Federal Reserve giving $4bn US dollars to the Central Bank of the Bahamas, and the Central Bank of the Bahamas giving B$4bn to the Federal Reserve.
“This, plus the US$2bn in reserves that are currently sitting in the Central Bank, would be sufficient to fund the entire recovery plan over the course of one year while maintaining the required peg reserves at $750m.”
Dr Rodgers said the Bahamian dollars required for the currency swap could take the form of the digital Bahamian dollar, known as Sand Dollars, or a Bahamian sovereign bond carrying a zero interest rate could be issued to raise funds for the swap.
“Of the three options, the Sand Dollar would be the simplest and least expensive,” he argued. “Furthermore, the US dollars received in the swap would be used for infrastructure projects, which would ultimately result in an increase in GDP in future years and a corresponding reduction in the debt-to-GDP ratio.
“In the aftermath of the crisis, the $4bn in Bahamian dollars that the Federal Reserve would have received as part of the swap arrangement would be used to invest in Bahamian assets such as Bahamasair, BPL and Water and Sewerage. The sale of these assets could be structured in such a way that all Bahamians would have a chance to have an equity position in them.
“At the end of the day, everyone would win as all of these privatised entities would be more efficiently managed. There would be a reduction in the cost of utilities, and government would no longer have to waste millions of dollars annually in subsidies, while Bahamian equity shareholders would receive dividends on their investments.”
See Page 2B for full article