Cypriot Euro and the Bahamian Dollar

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

History

Slate Plus Early Read: The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.

Doublex

Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
Damned Spot
Sept. 30 2014 9:00 AM Now Stare. Don’t Stop. The perfect political wife’s loving gaze in campaign ads.
  Business
Moneybox
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
  Life
Quora
Sept. 30 2014 9:32 AM Why Are Mint Condition Comic Books So Expensive?
  Double X
Doublex
Sept. 29 2014 11:43 PM Lena Dunham, the Book More shtick than honesty in Not That Kind of Girl.
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal. But… What readers said about the magazine’s bias and balance.
  Arts
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
  Technology
Future Tense
Sept. 30 2014 7:36 AM Almost Humane What sci-fi can teach us about our treatment of prisoners of war.
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath The Methane Lakes of Titan?
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.