Gold Reserve and Currency Management: A Key Pillar of Bahrain’s Financial Stability
Foreign Reserve: A Cornerstone of Financial Stability
The Central Bank of Bahrain (CBB) is required to hold a minimum amount of foreign exchange reserve equivalent to 100% of the value of currency in circulation. In exceptional circumstances, the Board may adjust this threshold to a minimum of 75%. This reserve will be used to maintain confidence in the Bahraini Dinar and protect the country’s financial stability.
Currency Management: A Prudent Approach
The CBB is empowered to:
- Buy, sell, and deal in gold coins and bullion, foreign currencies, treasury notes, and other bonds.
- Open and maintain accounts abroad.
- Act as an agent or correspondent for foreign central banks, governments, and international financial institutions.
Contingency Reserve: A Safety Net
A percentage of the CBB’s net profits will be credited to a special account known as the Contingency Reserve. This reserve can be used to support the country’s economic growth and stability in times of need.
Revaluation Reserve: Protecting Against Currency Fluctuations
The CBB is required to maintain a Revaluation Reserve Account, which will absorb any losses resulting from changes in the parity rate of the Bahraini Dinar or exchange rates. If necessary, the Government may issue bonds to cover any deficits, and these bonds will be:
- Interest-free
- Non-transferable
Relations with the Government and International Monetary Institutions
The CBB serves as the banker and financial agent for the Government, providing a range of services including:
- Account management
- Loan facilities
- Debt administration
It also maintains relations with international financial institutions, ensuring that Bahrain’s financial interests are protected and promoted.
Tax Exemption: A Boost to Financial Stability
The CBB’s capital, property, transactions, and profits are exempt from all taxes and fees, providing a stable foundation for the country’s financial system.
Conclusion
Bahrain’s decision to establish a foreign reserve and currency management framework demonstrates its commitment to maintaining financial stability and promoting economic growth. The Central Bank of Bahrain plays a vital role in this process, ensuring that the Kingdom’s financial system remains resilient and robust.