The im­me­di­ate ad­den­dum to last week’s col­umn is that Ja­maica’s net for­eign re­serves is high­er than that of Trinidad and To­ba­go. Let that re­al­i­ty sink in for a mo­ment. The same Ja­maica that is sup­posed to be un­der the IMF “bo­gey man” ac­tu­al­ly has more for­eign cur­ren­cy re­serves (ex­clud­ing our Her­itage and Sta­bil­i­sa­tion Fund) than T&T and this is so even when you fac­tor in some lev­el of ar­ti­fi­cial de­mand in Ja­maica com­ing as a re­sult of the for­eign ex­change poli­cies in T&T.

On Sep­tem­ber 8, 2025, the Bank of Ja­maica re­port­ed Net In­ter­na­tion­al Re­serves (NIR) of US$6,151.46 mil­lion at the end of Au­gust 2025. Mean­while, the Cen­tral Bankof T&T shows Net Of­fi­cial Re­serves (NOR) of US$4,610.2 mil­lion at a sim­i­lar pe­ri­od. Ex­clud­ing the ben­e­fit of our en­er­gy re­sources, Ja­maica now holds re­serves that are US$1.5 bil­lion high­er than ours.

It should be clear to any­one but the most ob­tuse, that our for­eign ex­change poli­cies have not been work­ing and are not work­ing. What I find par­tic­u­lar­ly in­ter­est­ing (amaz­ing) is the blan­ket as­ser­tion that ad­just­ments to the ex­change rate will au­to­mat­i­cal­ly re­sult in in­fla­tion. This as­ser­tion has been made by for­mer Gov­ern­ment of­fi­cials and cur­rent econ­o­mists, but no ev­i­dence has been pro­duced to back up this claim. It is an am­a­teur­ish ap­proach to say the least.

The proof of our FX pol­i­cy fail­ure ex­tends far be­yond re­serve com­par­isons. The Trinidad and To­ba­go Cham­ber of Com­merce con­duct­ed a sur­vey from No­vem­ber – De­cem­ber 2024 and pub­lished a pa­per ti­tled “Chal­lenges in ac­cess­ing for­eign xchange: Busi­ness in­sights”.

The doc­u­ment pro­vides a damn­ing as­sess­ment of the op­er­a­tional re­al­i­ty fac­ing our busi­ness com­mu­ni­ty. The sur­vey re­veals a sys­tem in com­plete dys­func­tion where 58 per cent of busi­ness­es re­port that banks sat­is­fy on­ly 0-25 per cent of their month­ly for­eign ex­change re­quire­ments, with 34 per cent wait­ing over four weeks for al­lo­ca­tions.

The eco­nom­ic car­nage is mea­sur­able and grow­ing. Some 62 per cent of busi­ness­es can­not pay sup­pli­ers on time, 59 per cent re­port de­clin­ing prof­itabil­i­ty, and near­ly one in five (19.8 per cent) are ac­tive­ly con­sid­er­ing re­lo­ca­tion.

Per­haps most telling is the wide­spread per­cep­tion of sys­temic in­equity that has emerged. The sur­vey shows 69 per cent of re­spon­dents be­lieve there is un­equal treat­ment and favouritism in the al­lo­ca­tion process, while 80 per cent be­lieve large busi­ness­es re­ceive pri­or­i­ty. This per­cep­tion of un­fair­ness com­pounds the eco­nom­ic dam­age by erod­ing con­fi­dence in the sys­tem’s ba­sic in­tegri­ty.

It should be clear that the pol­i­cy of for­eign ex­change ra­tioning has cre­at­ed its own dis­tor­tions rather than en­cour­ag­ing ef­fi­cient al­lo­ca­tion. A pol­i­cy that holds tight­ly to the cur­rent ex­change rate will con­tin­ue to make things worse. We can­not con­tin­ue like this.

Grey mar­ket

If the sup­ply of for­eign cur­ren­cy is not be­ing met by of­fi­cial sources as seems clear from the TT Cham­ber Sur­vey, where is the re­main­ing for­eign cur­ren­cy com­ing from? An ar­ti­cle in the Sun­day Busi­ness Guardian dat­ed No­vem­ber 17, 2024, might of­fer some clues. It speaks to how for­eign cur­ren­cy is sourced and ref­er­ences rates from $7.50 to $9.00 per US$1.

Much has been made about the us­age of cred­it cards to ac­quire for­eign cur­ren­cy, but few seem to fac­tor in that there is an on­line pur­chase tax (OPT) of 7 per cent levied on all on­line pur­chas­es. If you ap­ply that 7 per cent and the VAT on that 7 per cent, you will get an ef­fec­tive ex­change rate of around $7.34 to US$1. Rec­og­nize that de­spite the high­er ef­fec­tive rate on on­line pur­chas­es, such trans­ac­tions have gone up rather than down. There is de­mand at the high­er rate.

The fun­da­men­tal ques­tion in all of this is about pric­ing. If busi­ness­es are hav­ing ex­treme chal­lenges at sourc­ing goods at the of­fi­cial ex­change rate, then what rate are they pric­ing their im­port­ed goods at, ei­ther as man­u­fac­tur­ing in­puts or for re­sale in Trinidad and To­ba­go? This is the is­sue that needs to be ad­dressed with hard da­ta in­stead of the off-the-cuff as­ser­tion, that ad­just­ing the ex­change rate will au­to­mat­i­cal­ly lead to in­fla­tion.

I am writ­ing this with the ex­pec­ta­tion (hope) that a prop­er eco­nom­ic analy­sis should be forth­com­ing by those whose job it is to pro­vide this type of analy­sis.

In­fla­tion

When busi­ness­es in Trinidad & To­ba­go need US dol­lars to im­port goods, they must face their re­al­i­ty as de­scribed in the TT Cham­ber sur­vey. Let’s say a com­pa­ny needs to buy a con­tain­er of prod­ucts. They might get half the US dol­lars they need from a bank at the of­fi­cial rate of TT$6.78, but they’ll have to find the oth­er half on the par­al­lel (black) mar­ket. Based on anec­do­tal re­ports, that can be any­where from $7.50 to $10.00

Here’s the key point: busi­ness­es don’t price their goods based on the cheap­er dol­lars, they price every­thing based on the most ex­pen­sive dol­lars they had to buy. Why? Be­cause they nev­er know where their next batch of for­eign cur­ren­cy will come from or at what rate. They have to as­sume it will cost them the high­er rate.

This means even when busi­ness­es get lucky and ac­cess some cheap­er of­fi­cial rate dol­lars, they don’t pass those sav­ings on to cus­tomers. In­stead, those sav­ings be­come ex­tra prof­it, at least for the mo­ment. You can’t pass on some­thing you don’t have, in the sense that you still are not sure what rate you will be sourc­ing your next ship­ment at.

Those with a con­tinuious sup­ply of FX at the of­fi­cial rate will be the ones mak­ing the ex­tra prof­its over time. This is why every­one rush­es to banks try­ing to get for­eign ex­change as there’s au­to­mat­ic mon­ey to be made if you can buy dol­lars at $6.78 when the mar­ket has al­ready priced goods as­sum­ing an $8.00 or $9.00 rate. This then leads to short­ages.

If you had ac­cess to US dol­lars, would you sell them at the of­fi­cial rate of $6.78 when you know peo­ple are pay­ing $8.00 or more else­where? Of course not. It’s il­le­gal to trade out­side of of­fi­cial chan­nels but that’s ex­act­ly what seems to be oc­cur­ring. This is why our for­eign ex­change sys­tem locks up. This is why peo­ple hoard the cheap­er dol­lars in­stead of sell­ing them. It’s a nat­ur­al con­se­quence of the dys­func­tion­al sys­tem we have cre­at­ed.

Mean­while, busi­ness­es that can’t ac­cess of­fi­cial rate dol­lars at all have to price their goods at the black mar­ket rate just to sur­vive. Their prof­itabil­i­ty is squeezed. Any com­pa­ny that tried to price at the of­fi­cial rate would quick­ly run out of mon­ey for re­stock­ing and go out of busi­ness.

This pat­tern hap­pens in every coun­try with strict for­eign ex­change con­trols and a thriv­ing black mar­ket. Just look at Venezuela. Mar­ket prices nat­u­ral­ly grav­i­tate to­ward the black mar­ket rate, not the of­fi­cial rate.

The un­com­fort­able truth is that af­ter near­ly a decade of for­eign ex­change short­ages, many of our prices are like­ly to have al­ready ad­just­ed to re­flect black mar­ket rates, not of­fi­cial rates.

Fur­ther, here’s some­thing im­por­tant that decades of eco­nom­ic re­search shows: when ex­change rates change, con­sumer prices don’t au­to­mat­i­cal­ly jump by the same per­cent­age. Im­port prices do move with ex­change rates but a 15 to 20 per cent move in the of­fi­cial ex­change rate doesn’t au­to­mat­i­cal­ly mean 15-20 per cent in­fla­tion.

Cur­rent­ly, the of­fi­cial rate hov­ers around $6.70 to $6.80 per US dol­lar, while black mar­ket rates range from about $7.50 to $9.00. What if the gov­ern­ment al­lowed the of­fi­cial rate to move with­in a wider range, say be­tween $6.80 to $7.50? A less man­aged float.

Many goods are like­ly al­ready priced as­sum­ing rates at the high­er end of this range, so there might be no price change at all for these items. Yes, some goods still priced at of­fi­cial rates would see one-time price in­creas­es, but the gov­ern­ment could use tar­get­ed mea­sures through ve­hi­cles such as the Ex­im Bank, to pro­tect es­sen­tial items.

The re­al ben­e­fit of al­low­ing more flex­i­bil­i­ty would be bring­ing more for­eign ex­change in­to the of­fi­cial mar­ket. When the of­fi­cial rate moves clos­er to black mar­ket rates, more peo­ple are will­ing to sell their US dol­lars through le­gal chan­nels. This in­creas­es sup­ply and could ac­tu­al­ly bring down those ex­pen­sive par­al­lel mar­ket rates from $8 to $9 to some­thing clos­er to $7.50.

This isn’t about mak­ing a sin­gle pol­i­cy change in iso­la­tion. Any ex­change rate ad­just­ment needs to be part of a broad­er pack­age of re­forms to make it eas­i­er to do busi­ness in T&T.

The bot­tom line is this: it’s time to have an hon­est, ra­tio­nal dis­cus­sion about our ex­change rate pol­i­cy in­stead of mak­ing de­ci­sions based on fear. If we don’t act proac­tive­ly, we’ll keep slid­ing back­ward eco­nom­i­cal­ly. The cur­rent sys­tem isn’t pro­tect­ing us from high­er prices, in many cas­es, we’re al­ready pay­ing them.

Ian Nar­ine is a fi­nan­cial con­sul­tant who wants to in­crease the rate at which we ex­change. Please send your com­ments to ian@ian­nar­ine.com