The dollar is the official currency of the Bahamas. This currency can be subdivided into 100 cents. Internally, the Bahamian dollar is designated by a lone dollar sign, but when used in situations where it may be confused with dollars from other countries, the B$ abbreviation is used.
The Bahamian dollar was first introduced in 1966 by the Bahamian Currency Board, which was established in 1919 as an agency for issuing currency on the island. The Currency Board served its purpose well until the 1967 devaluation of the British pound sterling. The Bahamian dollar was introduced pegged to the pound sterling at a rate of 1 BSD: 7 shillings. Because the Bahamas have a large trade industry with the United States, the peg to the shilling was removed in favour of an on-par peg to the U.S. dollar. Banks in the Bahamas took a huge loss with the peg conversion because their sterling assets had to be exchanged. The banks took umbrage with the result of the change, and the Currency Board was forced to disband in 1968. However, it was replaced the same year by the new Bahamas Monetary Authority (BMA). The primary purpose of the BMA was to assume any risk that commercial banks held by being forced to exchange their foreign currency holdings.
The downfall of the BMA was that its authority was extremely limited, having no power to set any sort of monetary policy. This shortcoming was corrected after the Bahamas officially gained full independence from the U.K. in 1973. The Central Bank of the Bahamas was established in 1974 with the power to set official monetary policy for the country.
Today, the Bahamian dollar maintains a one-to-one peg to the U.S. dollar. To maintain the value of the Bahamian dollar, banks are required to keep U.S. dollar reserves. The Central Bank also makes changes in bank discount rates and sets credit controls to keep the Bahamian dollar from losing value. Most businesses in the country, especially those catering to tourists, also accept U.S. dollars for everyday transactions, even though U.S. dollars are not legal tender in the Bahamas.
The Central Bank of the Bahamas issues currency in the form of coins and banknotes. Coins are available in denominations of 1, 5, 10, 15, 25, and 50 and $1. However, the 15-cent coins are rarely used today. Their initial purpose was to ease the exchange between pounds sterling and U.S.-based Bahamian dollars since 15 cents, at the time of conversion, roughly equalled one shilling. Banknotes are available in denominations of 50 cents, $1, $3, $5, $10, $20, $50, and $100.