Home' Trinidad and Tobago Guardian : April 6th 2014 Contents APRIL 2014 • WEEK ONE www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
NEWS | SBG3
Are you one of the thousands of citizens of this country in
the prime of their life who earns a good income, but has dif-
ficulty making their salary cheque stretch from payday to
Are you retiree, living on what used to be considered a
good pension, but finding that your income allows you to
buy less and less as time goes on?
Are you on your first real job, just a few years out of uni-
versity and just starting to consider the really big decisions
in life: like marriage, moving out of your parents' house or
buying a car so that you don't have to fight up to get a taxi?
Or you may be a businessman wondering how the im-
ported product that you buy from China to sell in Sangre
Grande or Siparia is going to be impacted by the sharp in-
crease in the number of your fellow citizens who are shop-
If anyone of these four examples could be you, you have
come to the right place...and at the right time.
This is the time for the Sunday Business Guardian---
which you are free to call the Sunday BG---because in a few
short months, the Clico disaster---which descended on to
this country more than five years ago---is going to be com-
The arbitration panel that has been sitting in London for
more than three years on the disposition of the Methanol
Holdings asset will eventually produce a decision. Then all of
the holders of the Clico executive flexible premium annuities
would have been paid.
There is no doubt that the Clico disaster has had a pro-
found (if largely unanalysed) impact on the psychology of
the average Trinidadian as it has made us even more risk
averse in the investment decisions we make.
That caution has been felt at the household level as many
people choose to accumulate their income in what is re-
ferred to as demand deposit accounts or in income mutual
funds, which both allow easy and quick access to money.
But, the caution has also been felt at the corporate level,
as many local firms have delayed investment decisions, sold
off their foreign assets and gone after the low-hanging fruit
of retail and real estate development.
The cash-is-king mindset has contributed to commercial
banks struggling under the weight of about $95 billion in de-
posits and income mutual funds bursting at the seams with
about $35 billion in their coffers.
Much of that $130 billion in deposits and income funds---
which is equal to over 80 per cent of T&T's GDP---earns less
than 1.0 per cent. If the rate of inflation averages between
6.0 and 8.0 per cent, that means that the purchasing power
of money in a bank or income fund is declining over time at
a frightening rate.
One of the things that is going to be clear to you---if you
decide to make reading this publication a habit---is that we
live in a high inflation/low interest rate economy. And the
impact of the combination of high inflation and low interest
rates on the fortunes of T&T savers can be almost as brutal
today as Clico was five years ago.
What can the Government do about the high
inflation/low interest rate environment?
That is absolutely the wrong question. The right ques-
tions would be: what can YOU do about the economic envi-
ronment in which we live; how can you adjust your lifestyle
to protect yourself against the decline in the purchasing
power of your dollars?
The Sunday BG can assist you in making better financial
choices by providing you with facts, data, opinions, insights
and perspectives from T&T and around the world.
The Sunday BG is different from the Thursday publica-
tion because Sunday's focus will be on investments, finan-
cial and retirement planning, asset allocation and wealth
HAPPY READING and please let us know what you
think and how we can better serve your financial needs
by writing us at email@example.com or an-
Why a Sunday
BG and why now?
The Central Bank on
ed radical changes in
the way that foreign
currency is sold to
the local financial
system...but the news
was announced in
RBC Caribbean s regional economic report.
In what may be the most significant
change in the allocation of foreign
exchange since the "dirty" flotation of
the TT dollar in April 1993, some 90 per
cent of the injection of US dollars from
the Central Bank will now be auctioned
among 12 licensed foreign exchange deal-
ers.Under the previous system, according
to RBC Caribbean, roughly half would
have been auctioned among commercial
The Central Bank introduced the system
of competitive auctioning among autho-
rised foreign exchange dealers in May
2012, which allowed commercial banks
and other official dealers of foreign
exchange to make bids for US dollars and
other foreign currencies for the first time.
For close to two years, the auction sys-
tem operated alongside the established
system of foreign exchange allocation,
which has been in place largely since the
flotation of the TT dollar.
According to the RBC economic report,
there will now be no limit on the amount
that can be allocated to any one bidder
for those auctioned funds, while previously,
those funds would have been allocated
among commercial banks according to
their market share.
As before, the maximum price that one
can bid, would 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
The Tier 1 system, where the US dollar
supply from three large energy companies
was previously allocated to commercial
banks according to market share, will now
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 11 dealers.
The Central Bank has also announced
that it will not support the Tier 2 arrange-
ment going forward, where US dollars from
several other energy companies and
exporters would have been allocated among
commercial banks, according to market
In an interview with the Business
Guardian in November 2012, Alister Noel,
the Central Bank s senior manager of oper-
ations, said under the previous system,
the Central Bank intervened in the foreign
exchange market by making a pre-deter-
mined allocation among the authorised
dealers, which include commercial banks
The pre-determined allocation was
based on, among other things, the market
capitalisation of the institution and its
share of the foreign exchange market.
Between May 2012 and Tuesday, the
Central Bank operated a two-pronged sys-
tem: pre-determined allocation and com-
Asked whether the auction system
would contribute to a depreciation in the
US/TT exchange rate, Noel said: "Not at
this time. It would not be because of the
auction system because we would have
kept certain things constant. What the
auction system has done is compress the
spreads on the banking side.
"The changes in the selling price would
not be because of the auction."
Central Bank introduces...
New system of
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