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Central Bank changes US dollar distribution system

Published: 
Wednesday, April 2, 2014

The Central Bank of T&T has announced major changes to the way US dollars are released into the banking system. The change, which took effect yesterday, has, so far, only been made to foreign exchange (forex) traders privately. The T&T Guardian gleaned the information from the RBC Caribbean Economic Report released March 30. 

 

 

“Going forward, 90 per cent of the injections of US dollars from the Central Bank will now be auctioned amongst 12 licensed foreign exchange dealers, whereas roughly half would have been auctioned previously amongst commercial banks,” RBC Group Economist Marla Dukharan said in the report.

 

There will now be no limit on the amount that can be allocated to any one bidder for these auctioned funds, while previously these funds would have been allocated among commercial banks according to their market share, she said. The maximum price a forex dealer can bid will continue to be the current sell price. 

 

 

The remaining 10 per cent of the injection will be allocated equally among the 12 dealers at a price determined by the Central Bank, as opposed to the former allocation among commercial banks based on their market share, the report said. The Tier 1 system—where the US dollar supply from three large energy companies, Petrotrin, NGC and PCS Nitrogen, was previously allocated to commercial banks according to market share—has also been changed.

 

The originating institution—the one to which the US dollars are sold by the energy company—will keep 25 per cent of these funds, and the remaining 75 per cent will now be shared equally among the remaining eleven dealers. The Central Bank has also announced that it will not support the Tier 2 arrangement going forward. Under the Tier 2 system, US dollars from several other energy companies and exporters would have been allocated among commercial banks according to market share.

 

Dukharan said: “This new approach does not articulate any changes to the supply of US dollars coming to the market.”