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|
|1995-2017||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; monetary growth affected by fiscal balance, which is relatively under control; increased supervision of banks after GFC plus adoption of macroprudential policies||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.
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