the disappearance of the Bermuda dollar as local currency.

Mr. Charles Vaughan-Johnson, executive vice president, international, at the Bank of Bermuda and successor to the bank's president and chief executive officer, Mr. Donald Lines, substantiated this view during a speech to the Hamilton Rotary Club yesterday.

He also warned that as a result of abolition of the two mechanisms of exchange control and interest rate control, local banking services could become more expensive.

"Foreign owners of Bermuda banks would not be satisfied with a mechanism by which they subsidise the domestic Bermuda banking scene out of their international profits,'' said Mr. Vaughan-Johnson.

Finance Minister Dr. David Saul has forewarned Bermudians that they can expect to see interest rates freed and the virtual abolition of foreign exchange controls by the end of 1994.

Budget watchers are anticipating the predicted switch of policy will take place on February 14, budget day.

"If we make our currency fully convertible, it will be convertible into the US dollar, and we shall become an extension of the US dollar block and subject to overseas interest rates and the fortunes of overseas economies,'' said Mr.

Vaughan-Johnson.

"On the other hand, all Bermudians will then be free to invest their money where they wish, inside or outside Bermuda.

He pointed out that the local community, designated as resident for exchange control purposes would be affected, rather than Bermuda's international community.

"Exchange control and interest rate control enable us to preserve our economy, fragile and narrowly based as it is, especially with a diminishing contribution from the tourist business, which has declined steadily in real terms over recent years,'' said Mr. Vaughan-Johnson.

"We will not be able to influence that delicate balance when exchange controls and interest rate controls are done away with,'' he said.

Bermuda will become subject to the "winds of fortune of the international market place,'' he said.

If all controls, including investment and ownership in Bermuda, are removed, the Bermudian banks will face "significant change,'' he said. In his view, the Bermuda banks would be absorbed into international banking.

In order to remain competitive, the banks would have to continue to "solve the needs of an international onshore customer base by providing offshore-based services and information.'' On the subject of business expansion, Mr. Vaughan-Johnson said the banks examined the potential of new and acquired businesses.

Recently, the Bank of Bermuda acquired Standard Chartered Equitor's corporate trust business in Hong Kong and Singapore, doubling its business in the Asia Pacific region.

Mr. Vaughan-Johnson said the three banks, the largest participants in the international financial scene, together employ about 2,000 people.

The Bank of Bermuda employs 1,200 people in Bermuda. The Bermuda banking business generates eight percent of Bermuda's total GDP of $1.7 billion and 13 percent of Bermuda's foreign currency receipts.

Eight billion dollars is in deposits in Bermuda banks, and $35 billion comprises the total assets of trust companies in Bermuda. A total of $25 billion is invested in offshore mutual funds, the fastest growing sector on the Bermuda companies register, said Mr. Vaughan-Johnson.

BANKING ON BERMUDA -- Mr. Charles Vaughan-Johnson, executive vice president, international, said that the abolition of exchange control and interest rate control, anticipated in the upcoming budget, will have "far-reaching consequences'' for Bermuda.