A currency basket the statute never mentions

A basket peg reads like a rule, and rules are usually in a statute. This one is not. The Act governing the Solomon Islands dollar allocates power over the exchange rate to two different offices and then stops, saying nothing about a basket, a peg or any currency at all. Everything a reader would recognise as the arrangement sits underneath the legislation.

Key Takeaways

• The Act mentions no basket, no peg and no currency; it allocates two powers and stops.
• The regime is the Government's to set after consulting the Bank; the policy inside it is the Bank's.
• The basket is described as invoice-based, which weights the currency of billing rather than the trading partner.
• Australia is one of two currencies whose commercial bank spread is regulated.
• Reserves are held in a currency composition aligned with the basket.

What the Act says, and what it leaves out

Section 16 of the Central Bank of Solomon Islands Act 2012 is two paragraphs long. Without limiting the Bank's primary objective of domestic price stability, it provides that the Government may, after consulting the Bank, determine the exchange rate regime, and that the Central Bank may, after consulting the Minister for Finance, determine and implement the exchange rate policy and enter into foreign exchange arrangements.

That is the whole of it. There is no schedule of currencies, no weighting formula, no requirement to publish, and no instrument to be laid anywhere.

The split is worth pausing on, because it puts two decisions in two different hands. Whether the currency is anchored to a basket at all is a matter for the Government, taken on the Bank's advice. What goes into the basket and how the daily rate is produced is a matter for the Bank, taken on the Minister's advice. The functions provision mirrors it, giving the Bank a role to contribute to determining the regime and a separate function to determine and implement policy.

That arrangement also sits against an autonomy provision stating that the Bank, its Board and its staff shall not seek or take instructions from any other person, including public bodies. The Government's power over the regime is the carve-out from that autonomy, and it is a narrow one.

The Act was amended in 2023, touching sixteen sections and adding a new one on interest rates. It did not touch section 16.

How the daily rate is produced

Through an intervention currency, and with a discretion around the arithmetic.

The IMF's description of the mechanism is the clearest available: the Bank sets the exchange rate against the US dollar in such a way as to maintain the value of the basket constant in local currency, given the movements of the basket currencies relative to each other. The basket index is allowed to move with the market, and no fixed band is imposed on it.

So the target is the basket's value, and the instrument for hitting it is the rate against one member of that basket. The convert page for this pair carries the mechanics of the daily calculation itself.

Invoice-based, not trade-weighted

This is the distinction the arrangement turns on, and it is easy to slide past.

The IMF's formulation, used consistently across consultations, is that the currency is pegged to an invoice-based weighted basket. It does not define the term, and the distinction it implies is worth stating carefully rather than assuming.

On the ordinary reading, a trade-weighted basket asks which countries a place buys from and sells to, while an invoice-based one asks which currencies its transactions are billed in. Those diverge whenever goods are traded with one country and priced in the money of another. But the Fund also describes the 2024 update as reflecting the latest trade structure, which points the other way, and the Bank has published no methodology that would settle it. The honest position is that the basket is described as invoice-based and that what exactly is weighted has not been set out publicly.

Its staff recommended that the basket be reviewed periodically so the regime helps the Bank pursue price stability. Nothing published by either institution says aid flows or remittances enter the weights, and nothing says they do not; the absence of a published methodology is the finding here, not a conclusion about what the weights contain.

Where the anchor economy appears besides its weight

In the market rules, and in the reserve portfolio.

Commercial banks in Solomon Islands may exchange the local currency against other currencies and are free to set their own bid and ask spread, with two exceptions. The US dollar and the Australian dollar both carry a regulated spread limit. Every other currency is unregulated. Australia's position in the arrangement is therefore visible in market microstructure and not only in a weight, and it is the only currency besides the intervention currency to be treated that way.

The second appearance is on the balance sheet. The Governor's foreword to the Bank's 2025 annual report states that the currency composition of reserves aligned with the exchange rate basket, supporting the stability of the Solomon Islands dollar. A basket peg obliges the holder of the reserves to hold them in something like the basket's proportions, or the reserves themselves move against the target when the basket moves.

The alignment is not total. The Bank also reports modest holdings in euro, Singapore dollar and Chinese renminbi assets for diversification and to facilitate government external payments, none of which is in the basket.

What changed in 2024, and what did not in 2025

The composition was cut, and then left alone.

As at late 2021 the basket held five currencies: the US dollar, the Australian dollar, the New Zealand dollar, the Japanese yen and the pound sterling. The latest review and re-weighting was carried out on 21 August 2024, following an IMF technical assistance mission earlier that year to review the basket framework and the Bank's foreign exchange operations. The basket that emerged holds three: the US dollar, the Australian dollar and the New Zealand dollar. Two currencies were removed.

The Bank's own assessment is that the revised weights produced a flatter index, indicating reduced volatility in the mid-rate.

The review cycle is annual on the Bank's own statement, and the following year's review changed nothing. Its 2025 annual report records that it conducted its annual review of the exchange rate basket and decided to maintain the current weight composition, and separately that the weights were maintained.

The classification history is worth reading carefully rather than as a clean line. The declared arrangement is a conventional peg. The IMF's assessment of how it behaves was reclassified to crawl-like from other managed with effect from 31 March 2023, and an earlier consultation records a crawl-like classification from June 2020, so the behavioural reading has moved back and forth in a way the published record does not fully join up.

How the decision is actually taken

Through a committee, to a board, on a published cycle.

The Bank's Monetary Policy Committee, chaired by the Governor, oversees the key policy instruments including exchange rate management. Its recommendations go to the Board for approval, and the outcome is communicated by press release and through the Monetary Policy Statement, published twice a year in March and September. The committee met eight times during 2025.

The IMF's directors have pressed on the transparency point rather than on the composition, underscoring the need to keep the exchange rate fully aligned with the value of the updated basket and to enhance communication with market participants. The authorities' recorded position is that they will keep the regime in line with the revised basket and periodically review it.

A separate strand may change the surrounding framework: the exchange control legislation dates from 1976 with regulations from 1977, and a review of both began in 2025 and continued into 2026.

Where to look next

The AUD to SBD page carries the live reference rate, the published basket weights and the mechanics of the daily calculation. For a peg defended by a standing offer rather than by a daily calculation, how a currency board defends a peg sets out that mechanism, and how a rate band differs from a peg covers what an authority owes when the arrangement publishes edges. The currency peg entry defines the arrangement, and trade-weighted index explains how a basket of that other kind is built.

Sources

• Central Bank of Solomon Islands Act 2012 - section 16 allocating the regime to the Government after consulting the Bank and the policy to the Bank after consulting the Minister; section 8's primary objective of domestic price stability; section 7 on autonomy; and section 9's separate functions of contributing to the regime and determining policy
• Central Bank of Solomon Islands (Amendment) Act 2023 - the sections amended, and the absence of any amendment to section 16
• International Monetary Fund, Solomon Islands 2024 Article IV Consultation, Country Report No. 25/49 - the de jure conventional peg to an invoice-based weighted basket of three currencies; the re-weighting of 21 August 2024; the absence of a fixed band; the mechanism of setting the rate against the intervention currency to hold the basket constant; the regulated spread limits on two currencies and the freedom on all others; the reclassification to crawl-like effective 31 March 2023; the technical assistance mission; the recommendation to review the basket periodically; and the Board's emphasis on alignment and communication
• International Monetary Fund, Solomon Islands 2021 Article IV Consultation - the five-currency composition as at late 2021, and the earlier crawl-like classification
• Central Bank of Solomon Islands, exchange rates, definition and sources - the daily calculation against the intervention currency, the power to make discretionary changes within specified limits, and the publication time
• Central Bank of Solomon Islands, Annual Report 2025 - the annual review of the basket and the decision to maintain the composition; the Governor's statement that reserve currency composition aligned with the basket; the holdings outside the basket; the assessment that the revised weights produced a flatter index; the Monetary Policy Committee, its chair, its reporting to the Board and its meeting count; and the review of the exchange control legislation
• Central Bank of Solomon Islands, exchange control - the Exchange Control Act of 1976 and the regulations of 1977 as the governing framework

General information about how a basket exchange rate arrangement works. Not financial advice, and not a recommendation of any product or institution. Reviewed by the Tradergy editorial team, September 2026.