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Is new forex system better?

Thursday, May 29, 2014
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Jwala Rambarran, Central Bank Governor

Last Friday, May 23, the Central Bank issued a news release—one that was not signed by its Governor Jwala Rambarran—in which it announced that it was selling US$200 million to authorised foreign exchange dealers “to ease the current tightness being experienced in the domestic foreign exchange market.”


The Central Bank also said it met with the Bankers Association (BATT) last Thursday and “mutually agreed to further improvements in the distribution of foreign exchange. This sizeable intervention, together with the enhanced distribution system, will help to restore normalcy and eliminate accumulated unsatisfied demand.”



The Central Bank’s statement last Friday raises a number of questions:



1) What caused the “current tightness” in the foreign exchange market (and by “tightness,” readers should understand the Central Bank means legitimate demand for foreign exchange was not being satisfied)? Was the “current tightness” based on increased or excessive demand for foreign exchange or a decline in the supply of foreign exchange or some problem with the system of foreign exchange allocation, which was introduced on April 1, All Fools Day?



2) What does the reference to “further improvements in the distribution of foreign exchange” mean? Would the Central Bank tell the population what is the current method by which foreign exchange is distributed and how it differs from what went before? In what ways was this system improved?



3) What assurances can the public have that this sale of US$200 million—along with what was described as “the enhanced distribution system”—will, in fact, eliminate the accumulated unsatisfied demand for foreign exchange? What exactly was the unsatisfied demand? Why was it allowed to accumulate? Why was it unsatisfied?


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