As T&T con­tin­ues to bat­tle the forex crunch which con­tin­ues to af­fect busi­ness­es and or­di­nary cit­i­zens, two econ­o­mists are rec­om­mend­ing that Gov­ern­ment—in its mid year bud­get re­view—take in­to con­sid­er­a­tion im­ple­ment­ing a “man­aged float” go­ing for­ward.

Econ­o­mist Dr Ronald Ramkissoon as well as re­gion­al T&T born econ­o­mist Dr Justin Ram are ad­vis­ing there ought to be a man­aged float which could help tack­le the prob­lem of for­eign ex­change avail­abil­i­ty.

For­mer fi­nance min­is­ter Sel­by Wil­son how­ev­er, dis­agrees, say­ing there al­ready ex­ists a man­aged float in T&T.

What is a man­aged float?

Ramkissoon ex­plained that a man­aged float is where an ex­change rate fluc­tu­ates with­in a band, with the price mov­ing based on de­mand and sup­ply. If de­mand ex­ceeds sup­ply the rate could go to $8 per US$1 to­mor­row, but the next week the rate could go back to $7.

“So it is float­ing. When you op­er­ate where the rate is at $6.79, a buy­ing and sell­ing rate which is around the same price every day, which is where it’s at then is the rate re­al­ly float­ing? And you’re com­par­ing it to what a fixed rate is, which is what we had be­fore April 1993. In that regime, you know if the buy­ing rate is X, the sell­ing rate is Y and you go to the bank and you know that that is the rate. So that’s a fixed rate. A float­ing rate is where you have some flex­i­bil­i­ty de­pend­ing on what is called mar­ket forces at play. The de­mand and the sup­ply varies in the course of a day, a month, as the case might be,” he said.

Ramkissoon, a for­mer econ­o­mist at the Cen­tral Bank of T&T, not­ed that this coun­try used to op­er­ate a man­aged float start­ing in April 1993, stat­ing that by and large, that was suc­cess­ful­ly done.

“How do we move for­ward? We ei­ther ad­just the price, the man­aged float al­lows us or al­lowed us some flex­i­bil­i­ty in how the ex­change rate of the TT dol­lar to the US dol­lar could move. It was done with­in a band. It was done with the co­op­er­a­tion of the fi­nan­cial sec­tor.

“I think that is some­thing to think about. In oth­er words, see what was done at that time,” Ramkissoon added, re­fer­ring to the pe­ri­od when the TT-dol­lar was float­ing..

He al­so sug­gest­ed Gov­ern­ment re­vis­it the 2024 rec­om­men­da­tions of the In­ter­na­tion­al Mon­e­tary Fund (IMF) which not­ed that T&T’s for­eign ex­change re­stric­tions were not con­sis­tent with the fund’s Ar­ti­cles of Agree­ment.

The Wash­ing­ton DC-based lender de­tailed in T&T’s 2024 Ar­ti­cle IV Con­sul­ta­tion staff re­port that this coun­try main­tains an ex­change re­stric­tion that is not ap­proved by the IMF.

“In T&T’s 2024 Ar­ti­cle IV Con­sul­ta­tion staff re­port, it was not­ed that ‘ad­dress­ing for­eign ex­change short­ages re­mains a pri­or­i­ty,” and “the re­moval of all re­stric­tions on cur­rent in­ter­na­tion­al trans­ac­tions and greater ex­change rate flex­i­bil­i­ty over the medi­um term would help to meet the de­mand for for­eign ex­change,” the IMF said.

How would a man­aged float help T&T’s econ­o­my?

Ram said this coun­try needs to look at where the mar­ket is al­ready pric­ing for­eign ex­change, and seek to ad­just the ex­change rate in ac­cor­dance with that, and then seek to man­age the ex­change rate with­in a rea­son­able bound­ary, as it were.

“In ad­di­tion to that, we have to en­sure our cap­i­tal mar­kets and our for­eign ex­change mar­kets are ful­ly free be­cause we want peo­ple to be able to feel con­fi­dent to bring in their for­eign ex­change here, but al­so you want them to feel con­fi­dent that when­ev­er they want to, they can take for­eign ex­change out.

“To me, that is a ma­jor ob­sta­cle that we’re ex­pe­ri­enc­ing now. Peo­ple feel if they bring for­eign ex­change in, they can’t get for­eign ex­change out,” he said.

Ram said that as a coun­try, if one looks at Gross Na­tion­al Prod­uct, there is lot of for­eign ex­change owned by res­i­dents and com­pa­nies of T&T, out­side of this coun­try.

“And you want to en­cour­age some of that mon­ey to come back in­to Trinidad, ei­ther as di­rect in­vest­ment, or to just boost the for­eign ex­change re­serves of the coun­try. And I think that’s go­ing to have to be an im­por­tant part of this over­all ma­trix of poli­cies.

“If we are go­ing to ad­just the ex­change rate, it has to be done as part of a suite of over­all poli­cies, which in­cludes the full free­dom of the for­eign ex­change mar­ket, the over­all im­prove­ment in the busi­ness en­vi­ron­ment of this coun­try, be­cause ul­ti­mate­ly we want to pro­duce more homes, and we want to be able to sub­sti­tute for many more im­ports. And so it is not as if you can just ad­just the for­eign ex­change rate and as­sume that all of these things are go­ing to work. No,” Ram fur­ther ex­plained.

In re­al­i­ty, he said, there has al­ready been a “de­val­u­a­tion” of some sort in T&T.

Most peo­ple, Ram said, are strug­gling to get for­eign ex­change, forc­ing them to go to a “sort of open mar­ket,” and ac­tu­al­ly pur­chase for­eign ex­change at a rate high­er than the of­fi­cial rate.

“Some­times that can be as much as $10 to $1. So we have to be care­ful of this. There is al­ready in the mar­ket­place some type of de­val­u­a­tion, and if we think we can man­age the cur­rent for­eign ex­change sit­u­a­tion with­out some type of de­pre­ci­a­tion of the cur­ren­cy, I don’t think that’s vi­able,” Ram added.

On a broad­er scale, he said if T&T wants to in­crease lo­cal pro­duc­tion and there­fore, sub­sti­tute a lot of the im­ports cur­rent­ly con­sumed, the pric­ing of the for­eign ex­change has to be ex­am­ined.

“We des­per­ate­ly need to make im­ports of fi­nal prod­ucts a lot more ex­pen­sive and to en­sure that our do­mes­tic prod­ucts that we pro­duce here are com­pet­i­tive,” Ram said adding “One of the best ways to do that is to en­sure that the price at which we are pur­chas­ing of the for­eign ex­change is ac­tu­al­ly re­flec­tive of the sup­ply of for­eign ex­change, but al­so re­flec­tive of our over­all de­sire to in­crease do­mes­tic pro­duc­tion and to in­crease im­port sub­sti­tu­tion.”

How­ev­er, for­mer Min­is­ter of Fi­nance Sel­by Wil­son be­lieves the coun­try is al­ready op­er­at­ing un­der a man­aged float sys­tem.

He said when the Cen­tral Bank puts mon­ey in­to the sys­tem, it af­fects the rate and when it re­fus­es to put mon­ey in, it al­so af­fects the rate.

“The rea­son why our cur­ren­cy is in that band of 6.60 or 6.70 or 6.80, is be­cause of Cen­tral Bank putting mon­ey in or not putting mon­ey in­to the sys­tem. There is a band. When last you heard the mon­ey went be­yond 6.8 in the band? I don’t think it reached 6.80 yet.

“I think the cur­ren­cy is al­ready man­aged by Cen­tral Bank and the way they could man­age it is putting mon­ey and tak­ing mon­ey out of the sys­tem. If they put in for­eign cur­ren­cy, the price will fall. If they refuse to put in for­eign cur­ren­cy, the price will rise,” Wil­son said.

Ad­dress­ing the forex un­avail­abil­i­ty, he said is dif­fi­cult, stat­ing that there’s noth­ing the Gov­ern­ment by it­self can do to get more for­eign ex­change.

How­ev­er, Wil­son ad­vised Gov­ern­ment to stim­u­late busi­ness ac­tiv­i­ty and di­ver­si­fy the econ­o­my so more busi­ness­es earn for­eign ex­change to pro­vide more ac­cess to forex in the coun­try.