Home' Trinidad and Tobago Guardian : November 1st 2015 Contents NOVEMBER 1 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COVER STORY | SBG3
The biggest business story of
last week was the fact that
the Central Bank had con-
formed to the special direc-
tives that Minister of
Finance, Colm Imbert, had given the
institution at a meeting on Monday last.
Acting on the special directives, the
Central Bank re-established the foreign
exchange distribution system that was in
operation as at March 31, 2014.
It also consulted with commercial banks
to ascertain the foreign exchange queues
for trade-related purposes on their books
and made a special injection of US$500
million on Friday to immediately clear
The Central Bank, as well, requested
commercial banks to ensure that all legit-
imate demands for foreign exchange are
met (within a reasonable time), with pri-
ority accorded to trade-related transac-
Does the clearing of the backlog, the
re-establishment of the foreign exchange
distribution system before March 31, 2014
and the special injection of US$500 mil-
lion solve the problem of spottiness in
the availability of foreign exchange?
The entire population hopes so, but
those in the know are likely to curb their
The actions of the Central Bank
last week, which seem to be in
line with the Minister Imbert's
wishes, are worthy of some questions:
1) What exactly happened last
The Central Bank's suggestion that it
had reverted to the foreign exchange
allocation system that was in place before
March 31, 2014 is a bit of slight of hand.
That's because the allocation system
that's been in place since July 2014 is
substantially the system that continues in
The truth is the Central Bank almost
reverted to the previous system more than
a year ago, but just did not tell anybody.
That lack of communication on that
important fact, plus the spottiness of the
availability of foreign exchange has con-
tributed to a market that is now totally
It is also somewhat unfair to blame the
April 1, 2014 system for the onset of for-
eign exchange availability problems. In its
Article IV report on T&T, the IMF team
noted that "market participants have
reported fairly widespread and persistent
foreign exchange shortages since the
fourth quarter of 2013.
"The persistence of the shortages, in
contrast to previous episodes, may sug-
gest growing balance of payments pres-
sures stemming from high domestic liq-
uidity, rather than merely a temporary
mis-calibration of short-term shifts in
supply and demand.
2) Why did the Central Bank sell the
US$500 million to the authorised
dealers at a lower rate?
On Friday. a businessman called to tell
me that his bank had sold him a sum of
US dollars that allowed him to pay off his
The issue was that the bank sold him
the sum at $6.40 to US$1, which is slight-
ly at variance with the $6.3681 US dollar
selling rate that is posted on the Central
Bank website as at October 29.
What accounts for this "slippage" of less
than 1 per cent, when the Central Bank
has maintained the commercial banks' rate
at between $6.37 and $6.34 for the last
3) What does the $6.40 rate mean?
Clearly, the fact that the Central Bank
sold US dollars to commercial banks at
slightly higher price means something as
the Bank has assumed the responsibility of
setting the rate at which it sell foreign
exchange rather than allow the auction
process to determine the rate.
Also, it was pointed out, that banks are
commercial enterprises and they can't sell
something for less than what they paid for
it.By getting the banks to use $6.40 as
their selling rate, is the Central Bank try-
ing to send the market a signal?
Is it an indication that the next time the
Bank intervenes in the foreign exchange
market that there will again be a slight
It seems obvious that if the Central
Bank can set the rate at $6.40 to US$1,
they can set it at $7.40 or $5.40 or what-
ever rate it believes would be best for the
4) Should Mr Imbert get involved in
setting the rate?
I don't think anyone would be comfort-
able with a politician setting the main
exchange rates, although the Exchange
Control Act makes it clear that the whole
issue of exchange control can be delegated
to someone in the Ministry of Finance.
Section 3 of the Act states: "
"i) The Minister may by Order designate
the Central Bank established under the
Central Bank Act, or an officer in his
Ministry to be in charge of exchange con-
ii) Subject to subsection (1), the Central
Bank shall be charged with the general
administration of this Act and in the exer-
cise of its powers and the performance of
its duties the Bank shall conform with any
general or special directions given to it by
It seems that the law, as it stands,
would allow the Minister to designate his
Permanent Secretary to be in charge of
In the presentation of the 2016 budget
speech, Mr Imbert made it clear that one
of the requests he would made to the
Central Bank is to ensure the stability of
the exchange rate.
In an email to the Central Bank on Fri-
day, I noted that the institution had con-
formed to three of the four directives out-
lined by the Minister of Finance in the
The fourth directive---ensuring the sta-
bility of the exchange rate---was not
addressed in any way in the statement and
I wondered whether the omission of refer-
ence to this directive in the Central Bank's
statement was deliberate.
I sent a similar email to the Ministry of
Finance, wondering whether Mr Imbert
might have failed to give specific directives
on the need for exchange rate stability and
if the Central Bank had decided to sell the
US dollars at the higher rate....and perhaps
allow it to slide.
But that's just me. What do I know?
5) What are the consequences of
exchange rate stability?
As has been noted in this space before,
with the sharp reduction in the amount of
energy revenue that the Government
expects to collect, the Central Bank will
have much less US dollars with which to
intervene and sell to the authorised deal-
ers. This is likely to mean a sharp decline
in the country's foreign exchange reserves
as the demand for US dollars is likely to
The other point that was made to me
on Friday is that stability is not the same
as a fixed price.
Is the Central Bank committed
to exchange rate stability?
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