A one-to-one peg to the US dollar

The Bahamian dollar has been pegged at parity to the US dollar since 1973, and the Central Bank of The Bahamas, established in 1974, manages monetary policy to protect that peg. Tourism and offshore financial services bring in dollars, and the central bank holds foreign-exchange reserves and uses credit controls and exchange controls on residents to defend the rate. The fixed rate has kept inflation low and tied to US inflation, so interest rates follow US ones with some lag. The country is exposed to natural disasters: Hurricane Dorian in September 2019 caused damage estimated at around 3.4 billion US dollars, a quarter of GDP, and the pandemic, which stopped tourism in 2020, caused one of the sharpest contractions in the region. These shocks, rather than monetary policy, explain the swings in the Bahamas' growth series.