Bahrain had used a currency board since 1965, but moved first to fixing the exchange rate with a long process of financial liberalisation and increasingly active monetary policy, and finally to full-fledged exchange rate targeting from the mid-1990s.
| Years | Targets and attainment | Classification |
| 1974 | currency board (on USD) formally replaced in December 1973 by new Bahrain Monetary Agency (BMA) focused on supervising growing, largely independent (foreign-owned), banking system and regulating credit; but not much change in 1974, little real monetary policy operated | augmented currency board ACB |
| 1975-94 | 1975-78 exchange rate fixed against USD, 1979-80 fixed against SDR with wide margins in principle vs SDR but narrow margins in practice vs USD, and central rate vs USD adjusted in small (<1%) amounts from time to time; from 1981 rate vs USD unchanged, even when dinar goes outside its wide margins vs SDR; use of interest rate recommendations, reserve requirements, forex swaps (to stabilise domestic interest rates); monetary expansion dominated by fiscal deficit and balance of payments; growth of interbank money and government bond markets from 1970s; from late 1980s interest rate liberalisation, completed by August 1994 | augmented exchange rate fix AERF |
| 1995-2023 | exchange rate still formally pegged to SDR but de facto peg to USD is now well-established, and monetary policy “directed primarily at regulating domestic liquidity to ensure the stability of the exchange rate under an open exchange and payments system, and with market-determined interest rates” (RED 1996); peg to USD de jure as well as de facto from December 2001, in context of planned (later postponed) move towards GCC monetary union; BMA becomes Central Bank of Bahrain 2006; development of Islamic banking and finance supported by central bank; from 2006 overhaul of monetary policy instruments following recommendations of IMF report, including introduction of standing facilities; increased supervision of banks after GFC plus adoption of macroprudential policies [No Article IV reports available after 2019] | full exchange rate targeting FERT |
Selected IMF references: Currency Arrangements and Banking Legislation in the Arabian Peninsula (1974); RED 1975 pp31-3, 40; RED 1976 pp28-31, 40; RED 1977 p30; RED 1979 pp39-40; SR 1979 p9; RED 1981 pp33-6; RED 1982 p51; RED 1988 pp31-3; RED 1992 pp30-32; RED 1996 pp34-5; SR 1996 pp14-15; RED 1998 pp32-3, 37, 49; SR 2008 pp13-15; SR 2009 pp8-9; SR 2014 pp15-16; SR 2016 pp16, 17-18; SR 2018 pp7-8, 14; SR 2019 p12; IMF Executive Board Concluded Article IV Consultation with the Kingdom of Bahrain (press release, July 2023).
Other references: Central Bank of Bahrain, ‘Monetary policy framework’, at https://www.cbb.gov.bh/monetary-policy/#mpf, accessed 20.08.24.
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Monetary Policy Frameworks 