More Reserves, Thinner Cover

The Central Bank of The Bahamas published its Monthly Economic and Financial Developments report for July on 31 August. External reserves fell that month by B$67.67 million to B$3,227.93 million, a larger drop than the B$15.73 million recorded in July 2025. Read on its own, that line looks like a warning. Read against the year, it is not one. Reserves stood at B$2,972.16 million in July 2025, so the stock is 8.6 per cent higher than it was twelve months ago, and the build over the first seven months of 2026 is B$413.52 million against B$339.21 million across the same months last year. The Bahamian dollar sits at par with the US dollar, the Bank buying US dollars from commercial banks at US$1.00 to B$1.00, so these are close to US dollar figures. Tourism is doing its part. Departures through Nassau were up 5.4 per cent year to date at 1.1 million, with non-US international traffic up 33.7 per cent. Room nights sold in the short-term rental market rose 10.5 per cent in July, and the average daily rate for hotel comparable listings rose 7.7 per cent to B$177.49. On the face of it the peg is better covered than it was a year ago.

One ratio in the Bank's own table says otherwise. External reserves as a share of M2 fell from 31.36 per cent in July 2025 to 31.03 per cent in July 2026. The arithmetic behind that is plain. Reserves grew 8.6 per cent over the year while the broad money stock grew 9.8 per cent, from B$9,478.57 million to B$10,403.79 million. The gap is small and it runs the wrong way. Two other coverage measures in the same table moved in the opposite direction. Reserves against base money rose from 100.78 per cent to 110.38 per cent, and reserves against demand liabilities rose from 94.94 per cent to 103.75 per cent. Both now sit above full cover. So the narrow measures improved while the broad one slipped, and the broad one is the position a fixed peg has to defend. Base money is what the central bank has issued. M2 is what residents hold and can bring to the window.

The new money has a source, and it is in the credit table. Total domestic credit grew by B$467.98 million over the first seven months of 2026 against B$140.89 million in the same period of 2025, more than three times as much. Private borrowers are not the reason. Private sector credit grew by B$113.59 million this year against B$148.96 million last year, so it slowed. Net claims on central government rose by B$79.23 million against B$8.77 million, and credit to the rest of the public sector rose by B$275.15 million against a repayment of B$16.84 million. Those two lines come to B$354.38 million between them, about three-quarters of the total. Over the same months of 2025 the public sector was a net repayer and private borrowers accounted for all the growth. The Bank's outlook expects the government's financing requirements to be met from domestic and external borrowing, with domestic sources taking the larger share. Domestic borrowing creates Bahamian dollars. It does not create the foreign currency standing behind them.

None of this is distress and the report does not present it as such. Reserves cover 31 per cent of M2, they exceed base money, and they exceed demand liabilities. The foreign exchange data even shows the state stepping back. Sales of foreign currency for current account transactions rose B$272.36 million year to date, and yet the public sector's share of those sales fell by B$192.14 million while factor income payments fell by B$190.51 million. What rose was private. Non-oil imports took B$140.40 million more, oil imports B$80.81 million more, and other current items, which are mostly credit and debit card transactions, B$244.33 million more. Residents' foreign currency deposits reached B$931.48 million, up 36.7 per cent on a year earlier. Households are buying more abroad and holding more foreign currency while they do it. The Caribbean Debt Tracker carries The Bahamas at 71.9 per cent of GDP with a primary surplus of 3.6 per cent, and both of those are sound. A peg turns on a different question, whether the reserves keep pace with the claims on them, and over the last twelve months they have not quite.