Cypriot Euro and the Bahamian Dollar

Moneybox
A blog about business and economics.
March 26 2013 3:16 PM

The Cypriot Euro and the Bahamian Dollar

BAH0074

Thinking about the new regime of capital controls that will restrict exports of euros from Cyprus until at least May, I'm reminded of the Bahamian dollar. The Bahamian dollar is called a dollar just like the U.S. dollar. And if you go to the Bahamas, you can trade one American dollar for one Bahamian dollar no problem. Prices are posted in dollars, and if something costs $30, you can hand them a piece of paper with a picture of Ulysses Grant on it and in exchange they'll give you the item and a piece of paper with a picture of Sir Milo Butler.

But none of that means that a Bahamian dollar is the same as an American dollar. While you can spend American dollars in Nassau, you can't spend Bahamian dollars in Nassau County. Consequently, any sensible person would rather have a suitcase full of American dollars than a suitcase full of Bahamian dollars. The 1-to-1 exchange-rate peg is a myth that's maintained in part through controls on Bahamians' access to foreign exchange. One way to think about the peg is that it's a form of price discrimination. If you pay for that $30 item with American cash, you're in fact paying more for it than if you're paying with Bahamian cash. Consequently, tourists end up paying a higher price than locals, but tourists who are very thrifty or savvy can find a way to get the local price. It's pretty obvious why this might be smart public policy for a tourist hub like the Bahamas, though it does have some real hassle costs for Bahamian citizens and probably makes it hard to launch the world's next great multinational company in the Bahamas.

The analogy's not perfect, but it seems to me to be roughly similar to where Cyprus is heading with this. A Cypriot euro won't be worth the same amount of money as an Irish or Spanish or German euro, but things will be set up so as to make it quick and easy for Finnish or Dutch visitors to Cyprus to pay the same nominal price for locally produced goods as a Cypriot would. You get some of the benefits of leaving the euro and floating the currency plus some of the benefits of a monetary union at the price of some serious hassles.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

The Irritating Confidante

John Dickerson on Ben Bradlee’s fascinating relationship with John F. Kennedy.

My Father Invented Social Networking at a Girls’ Reform School in the 1930s

Renée Zellweger’s New Face Is Too Real

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

The All The President’s Men Scene That Captured Ben Bradlee

Medical Examiner

Is It Better to Be a Hero Like Batman?

Or an altruist like Bruce Wayne?

Technology

Driving in Circles

The autonomous Google car may never actually happen.

The World’s Human Rights Violators Are Signatories on the World’s Human Rights Treaties

How Punctual Are Germans?

  News & Politics
Politics
Oct. 22 2014 12:44 AM We Need More Ben Bradlees His relationship with John F. Kennedy shows what’s missing from today’s Washington journalism.
  Business
Moneybox
Oct. 21 2014 5:57 PM Soda and Fries Have Lost Their Charm for Both Consumers and Investors
  Life
The Vault
Oct. 21 2014 2:23 PM A Data-Packed Map of American Immigration in 1903
  Double X
The XX Factor
Oct. 21 2014 3:03 PM Renée Zellweger’s New Face Is Too Real
  Slate Plus
Behind the Scenes
Oct. 21 2014 1:02 PM Where Are Slate Plus Members From? This Weird Cartogram Explains. A weird-looking cartogram of Slate Plus memberships by state.
  Arts
Brow Beat
Oct. 21 2014 9:42 PM The All The President’s Men Scene That Perfectly Captured Ben Bradlee’s Genius
  Technology
Technology
Oct. 21 2014 11:44 PM Driving in Circles The autonomous Google car may never actually happen.
  Health & Science
Climate Desk
Oct. 21 2014 11:53 AM Taking Research for Granted Texas Republican Lamar Smith continues his crusade against independence in science.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.