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Former Central Bank deputy governor Dr Terrence Farrell weighs in: No policy rationale for April 1 forex changes
On April 1, 2014, the Central Bank of T&T (CBTT) implemented substantial changes to the system of distributing foreign exchange that caused an uproar among members of the business community who have complained consistently that they cannot get foreign exchange to pay their bills.
One of the main changes is that now 90 per cent of the US dollars in the system are now being auctioned among 12 licensed foreign exchange dealers.
Was the decision to change the distribution system the right one?
Was the previous system in which 50 per cent of the foreign exchange was auctioned appropriate for T&T?
NADALEEN SINGH asked former Central Bank deputy governor Dr Terrence Farrell for his views on the evolution of T&T’s foreign exchange system, leading up to the April Fool’s Day changes.
Q: How important is having foreign currency readily available to a country?
A: The availability of foreign exchange is critical to the operation of any country whose currency is not a reserve currency (the US dollar is a reserve currency and a 'vehicle currency' so that the USA does not worry about 'foreign reserves'; the rest of the world uses the US dollar and other reserve currencies to transact international trade in goods and services. The notion, however, that three months worth of merchandise imports is an adequate level of reserves is ludicrous for small, vulnerable island economies with volatile export earnings and with significant demand for non-merchandise imports. That so-called 'international benchmark' goes back to the period of fixed exchange rates and applied to the highly industrialised countries, not to countries like ours.