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Economist: T&T $$ in no danger of devaluation

Friday, February 15, 2013

T&T is not in danger of a devaluation of its currency as just happened in Venezuela because the two foreign exchange regimes are different, a University of Trinidad and Tobago (UTT) economist and International Relations lecturer, who asked not to be named, told the T&T Guardian yesterday. The lecturer explained that Venezuela has a fixed exchange rate and Venezuelan Central Bank officials made the decision to increase revenues to fund the country’s popular social programmes. 



“We no longer use the word devaluation in a floating exchange rate regime. The words are appreciation and depreciation. In a fixed exchange rate regime, they use the word devaluation because it means the national currency is devalued by the Central Bank, which in this case is the Bank of Venezuela. In T&T, the currency operates in a managed float exchange rate regime so you do not allow to it go too low or to go too high. “If it depreciates below a particular bar or restriction it means it will have an impact on the cost of imports and this is a country highly dependent on imports. If it appreciates too high, then exports become expensive and the Central Bank intervenes to keep it within a certain bar,” he said. 


Last Friday, the Venezuelan Government devalued the Bolivar by 32 per cent from 4.3 to 6.3 Bolivars to the US dollar. The measure was seen as inevitable by many economists after the bolivar fell to under a quarter of its official value on the black market. It is the fifth devaluation since currency controls were introduced in Venezuela in 2003. The government also announced establishment of a new body to oversee allocation of dollars to citizens and businesses. The UTT economist told the Guardian: “The government of Venezuela will be obtaining a significant increase in the inflow of bolivars which will assist them in maintaining its very crucial social programmes for the poor and disadvantaged of Venezuelan society. The privileged sector of venezuela who depend on luxury imports will find those goods rising in price. However they can afford it,” he said.


He gave the example of the Chinese and the US currencies which he said are at “war” because of China’s currency allowing its exports to be cheaper. “Another impact of any currency devaluation is imported raw materials  and imported inputs into manufacturing sector. The exports will be definitely cheaper. The national currency of China is much cheaper than the US dollar and so there is a sort of currency war. US economist, Mark Weisbrot from the Washington-based Centre for Economic Policy Research (CEPR), predicted the devaluation would have a positive impact. “The devaluation…by making imports more expensive will provide a boost to import-competing industries. For this reason, and because it reduces the black market premium and reduces capital flight, the move will overall be good for the economy,” he said.


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