GEISHA KOW­LESSAR ALON­ZO

One of the most sen­si­tive and fre­quent­ly de­bat­ed top­ics in T&T’s eco­nom­ic dis­course is the of­fi­cial ex­change rate of the T&T dol­lar against the US dol­lar. The Cen­tral Bank of T&T (CBTT) has long main­tained a sta­ble rate, with the sell­ing rate rang­ing be­tween $6.77 and $6.79 to US$1.

How­ev­er, this de fac­to fixed rate has faced in­creas­ing scruti­ny from econ­o­mists, busi­ness lead­ers and the pub­lic.

A key as­pect of the de­bate re­volves around the Cen­tral Bank’s role in man­ag­ing this rate ver­sus its le­gal man­date.

The Cen­tral Bank’s man­date, en­shrined with its es­tab­lish­ment in De­cem­ber 1964, is “the pro­mo­tion of such mon­e­tary, cred­it and ex­change poli­cies as would fos­ter mon­e­tary and fi­nan­cial sta­bil­i­ty and pub­lic con­fi­dence and be favourable to the econ­o­my of Trinidad and To­ba­go.”

On Thurs­day, at his first me­dia en­gage­ment since as­sum­ing of­fice two months ago, Cen­tral Bank Gov­er­nor Lar­ry Howai ad­dressed the press­ing ques­tion of whether he was com­mit­ted to main­tain­ing the cur­rent ex­change rate.

He clar­i­fied that this de­ci­sion falls out­side of the Cen­tral Bank’s man­date, as it is a pol­i­cy­mak­ers' de­ci­sion, made by elect­ed gov­ern­ment of­fi­cials.

The Cen­tral Bank’s role, the Gov­er­nor ex­plained, is to pro­vide the Gov­ern­ment with the da­ta and analy­sis re­quired to make an in­formed choice. He added that this in­cludes con­duct­ing de­tailed com­pu­ta­tions on the po­ten­tial ef­fects of any change on eco­nom­ic fac­tors such as in­fla­tion.

“That is not a ques­tion for us. That de­ci­sion is made across in the oth­er tow­er. We pro­vide a lot of guid­ance on that in terms of in­for­ma­tion that could be used to de­ter­mine what the re­al ef­fec­tive ex­change rate could or should be. We do dif­fer­ent sce­nar­ios. We do com­pu­ta­tions on the ef­fect of any pos­si­ble change on things like in­fla­tion and that kind of stuff.

“We do all the work that is re­quired, but it’s not a de­ci­sion that we make. It’s a pol­i­cy­mak­ers' de­ci­sion made on the ba­sis by the peo­ple who were elect­ed to make those kinds of de­ci­sions for us. So we don’t ven­ture in­to that. We pro­vide the in­for­ma­tion, and we leave it to the pol­i­cy­mak­ers to de­cide what is best giv­en the en­tire am­bit of all the things that are af­fect­ed by that de­ci­sion,” Howai stat­ed.

An im­por­tant part of this pol­i­cy­mak­ing process is a thor­ough eval­u­a­tion of the po­ten­tial pos­i­tives and neg­a­tives that could re­sult from a change in the ex­change rate as the Gov­er­nor al­so ad­mit­ted that the the sys­tem can­not cur­rent­ly meet every­body’s de­mand for for­eign ex­change.

Pressed fur­ther on whether an ex­change rate with a ceil­ing of $6.79 is fos­ter­ing pub­lic con­fi­dence in the econ­o­my Howai said, “What I would say to that is yes. It is true the Gov­ern­ment makes the de­ci­sion with re­spect to how they think that rate should be. Our pol­i­cy de­ci­sions are around all the is­sues it af­fects. So, for ex­am­ple, if you have a rate of $6.79 to use cur­rent­ly, what is the kind of in­ter­ven­tion we need to make in in­ter­est rates, liq­uid­i­ty man­age­ment, the mar­ket in­ter­ven­tions and so on.”

Fur­ther, he not­ed the rea­son why Gov­ern­ment tries to keep the rate with­in a band is that too rapid a move­ment away from any par­tic­u­lar rate could cre­ate sig­nif­i­cant dis­tor­tions for the econ­o­my that the Cen­tral Bank does want to see hap­pen­ing right away.

“And I ex­pect that what is hap­pen­ing, pol­i­cy­mak­ers are look­ing at how is this go­ing to af­fect the small man. And how is it go­ing to af­fect the abil­i­ty to live at a ba­sic lev­el and so on? And those are things that I think they will need time to con­sid­er care­ful­ly. And over time, I sup­pose, they will try to rule out dif­fer­ent ini­tia­tives on their side as we rule out on our side to see how we could get to a lev­el that min­imis­es the dis­rup­tion that comes from an ex­change rate ad­just­ment,” he fur­ther ex­plained.

He not­ed there is a cur­rent de­mand in T&T for US$6 bil­lion an­nu­al­ly, but the sup­ply is about US$4 bil­lion.

The Gov­er­nor how­ev­er, out­lined sev­er­al fa­cil­i­ties the CBTT us­es to sup­ple­ment the for­eign ex­change sup­plied di­rect­ly by the en­er­gy sec­tor to com­mer­cial banks. These in­clude:

* The Ex­im Bank fa­cil­i­ty: This pro­vides ap­prox­i­mate­ly up to US$50,000 a month (US$600,000) to small and medi­um-sized en­ter­pris­es (SMEs) for in­ter­na­tion­al busi­ness ex­pens­es. This ini­tia­tive aims to im­prove forex ac­cess for busi­ness­es, en­sur­ing that crit­i­cal in­dus­tries and sup­plies are not starved of for­eign cur­ren­cy. This fa­cil­i­ty has be­come a vi­tal chan­nel for man­u­fac­tur­ers, who re­ceive a por­tion of their for­eign ex­change needs through this win­dow rather than ex­clu­sive­ly through com­mer­cial banks.

* The liq­uid­i­ty guar­an­tee fa­cil­i­ty: The CBTT al­so pro­vides sup­port to com­mer­cial banks that “over­sell” their for­eign ex­change po­si­tions to meet high de­mand. This fa­cil­i­ty helps banks man­age their risk and en­sures a cer­tain lev­el of liq­uid­i­ty in the mar­ket, though the Gov­er­nor not­ed that this sup­port is be­ing scaled back as for­eign re­serves de­cline.

The core of the prob­lem, Howai re­it­er­at­ed, is a fun­da­men­tal dis­e­qui­lib­ri­um be­tween de­mand and sup­ply and with de­mand far ex­ceed­ing sup­ply, the sys­tem can­not sat­is­fy every­one’s needs.

He em­pha­sised that this is not a new is­sue, cit­ing that even dur­ing times of high re­serves in 2015, the Cen­tral Bank still had to in­ter­vene to main­tain sta­bil­i­ty.

The chal­lenge to­day is man­ag­ing the short­age with a much low­er lev­el of re­serves.

So­lu­tions

The long-term so­lu­tion, ac­cord­ing to the Gov­er­nor, lies in a fun­da­men­tal change in the coun­try’s eco­nom­ic struc­ture and in­di­vid­ual be­hav­iour.

With the de­cline of the tra­di­tion­al oil and gas sec­tor, the Gov­er­nor un­der­scored the need for more cit­i­zens and res­i­dents of T&T to be­come for­eign ex­change earn­ers. He cit­ed the po­ten­tial for pod­cast and con­tent cre­ation as a mod­ern way for in­di­vid­u­als to gen­er­ate for­eign ex­change.

Cit­ing the ex­am­ple of a uni­ver­si­ty pro­fes­sor earn­ing mon­ey from in­ter­na­tion­al “gigs,” he sug­gest­ed that con­tent cre­ators in T&T could earn for­eign cur­ren­cy through plat­forms that pay for views, down­loads, or spon­sor­ships.

This dig­i­tal ap­proach al­lows in­di­vid­u­als to lever­age their unique knowl­edge and cre­ativ­i­ty to reach a glob­al au­di­ence.

In the agri­cul­ture sec­tor, the Gov­er­nor point­ed to the lu­cra­tive po­ten­tial of niche ex­ports. He shared an anec­dote about an Amer­i­can pep­per ex­porter who was a ma­jor buy­er of the Trinida­di­an scor­pi­on pep­per, demon­strat­ing a pre-ex­ist­ing in­ter­na­tion­al mar­ket for lo­cal prod­ucts.

Howai al­so high­light­ed the im­mense, yet of­ten un­tapped, po­ten­tial of tourism, par­tic­u­lar­ly in niche ar­eas like eco-tourism and bird watch­ing. He re­count­ed a sto­ry about an Amer­i­can or­nithol­o­gist who was so cap­ti­vat­ed by the prospect of bird watch­ing in Trinidad that he was will­ing to make a mas­sive in­vest­ment in a bond is­sue for the coun­try.

Ac­cess­ing one’s own forex

Howai ad­dressed the le­gal and lo­gis­ti­cal is­sues sur­round­ing for­eign ex­change man­age­ment, stat­ing de­fin­i­tive­ly that it is il­le­gal for a com­mer­cial bank to with­hold a cus­tomer’s for­eign cur­ren­cy de­posits.

He em­pha­sised that while a cus­tomer has a le­gal right to their de­posit­ed funds, the scarci­ty of phys­i­cal cash could cre­ate prac­ti­cal chal­lenges.

This is par­tic­u­lar­ly true for small­er, more re­mote bank branch­es, he added.

Howai ex­plained that this is a glob­al trend where busi­ness­es, in­clud­ing banks, pre­fer not to hold large amounts of phys­i­cal cash due to the high costs as­so­ci­at­ed with se­cu­ri­ty, in­sur­ance and stor­age.

The Cen­tral Bank, how­ev­er, recog­nis­es this as a cus­tomer ser­vice is­sue and in­di­cat­ed that it would be ad­dress­ing that with com­mer­cial banks to en­sure that an ad­e­quate sup­ply of for­eign cur­ren­cy cash is avail­able to meet cus­tomer needs.

This high­lights a key dis­tinc­tion: while a bank can­not refuse to pro­vide a cus­tomer with their funds, the method and tim­ing of that with­draw­al may be af­fect­ed by the avail­abil­i­ty of phys­i­cal cash.

Eco­nom­ic con­trac­tion and in­fla­tion

The Gov­er­nor be­gan by re­view­ing the coun­try’s re­al GDP (Gross Do­mes­tic Prod­uct), not­ing a sig­nif­i­cant de­cline from 2016-2017 fol­low­ing the drop in glob­al oil prices.

While there has been a slight uptick in re­cent years, the econ­o­my has yet to re­turn to its 2015 lev­els. Howai pre­sent­ed Cen­tral Sta­tis­ti­cal Of­fice (CSO) da­ta show­ing a mod­est 2.5 per cent growth in 2024. How­ev­er, the Cen­tral Bank’s own, more time­ly es­ti­mates sug­gest a con­trac­tion of about two per cent in the first two quar­ters of the cur­rent year, in­di­cat­ing a re­cent slow­down.

De­spite the eco­nom­ic con­trac­tion, in­fla­tion re­mains rel­a­tive­ly well-man­aged.

The Gov­er­nor re­port­ed that T&T’s core in­fla­tion rate is ap­prox­i­mate­ly 1.5 per cent, sig­nif­i­cant­ly low­er than in many de­vel­oped coun­tries.

He not­ed that food in­fla­tion, at just over three per cent, is the pri­ma­ry dri­ver of the over­all rate, but the fig­ure re­mains low enough to be a point of sta­bil­i­ty in the econ­o­my.