Home' Trinidad and Tobago Guardian : June 8th 2014 Contents A7
June 8, 2014 www.guardian.co.tt Sunday Guardian
Rambarran to the public:
Don't panic, no $$ shortage
• From Page A6
Q: What was wrong with the pre-
vious system in which 50 per cent of the
foreign exchange was auctioned and 50 per
cent was allocated on a pro-rata basis?
A: It is under the improved allocation
system implemented on April 1 that the inter-
vention ratio was moved to 50:50, between auc-
tion and non-competitive sales.
As I just indicated, the 20-year old allocation
system became outdated, especially given the
established trends such as foreign exchange
demand overtaking supply and the changing
composition of foreign exchange demands that
now reflect new patterns of consumer spending,
such as the use of credit cards for making online
payments and new forms of investment. All of
this is taking place while the energy sector remains
the dominant source of foreign exchange supply.
Q: What was the CB hoping to
achieve by implementing the new allocation
A: The improved allocation system aims
to facilitate a more balanced distribution of inter-
vention funds using all authorised dealers and
to inject funds prior to market tightness occurring.
Q: To what extent is the new auction
system Jwala Rambarran s brainchild and
do you take personal responsibility for it?
A: As I stated before, the auction system
is not new. It was implemented in May 2012
prior to my taking up office in July 2012. The
improvements to the Central Bank s allocation
system (of which the auction is just part) resulted
from collaboration and consultation with the
banks and non-bank financial institutions and
from the research and analysis done by the Central
Bank on the evolving state of the domestic foreign
Q: Do you agree that the auction
makes no sense where there is a price cap
because the purpose of an auction is to
establish the highest price someone is pre-
pared to pay for something?
The cap on the price of the auction
ensures that no one authorised dealer
secures all of the funds. As such, the
funds are allocated in a more equitable
manner, reducing price volatility in the
domestic foreign exchange market.
Q: Former central banker Ter-
rence Farrell basically trashed the
new allocation system in Thursday s
Business Guardian, saying that it has
"worsened the situation," and that
"there is no discernible, sensible pol-
icy rationale for the changes intro-
duced by the Central Bank." If you
disagree with Dr Farrell, could you
please state your reasons for disagree-
ing.A:Many authorised dealers
acknowledge that the current allocation
system has strong merits and it should
be given a chance to work.
Q: The Central Bank is
responsible for the management of
the foreign exchange market in the
public s interest. Do you think the
public s interest is being served by
uncertainty about the availability of
A: This is a somewhat limited
view of the foreign exchange market. Cen-
tral Bank s policy role in the foreign
exchange market ensures orderly condi-
tions in the domestic foreign exchange
market. We maintain balance between
the demand for and supply of foreign
exchange in the market, and we also main-
tain an exchange rate aligned to economic
Since April 1993 the market has been
in the hands of the private sector. The
Central Bank does not supply 100 per
cent of the market needs. It actually sup-
plies around 25 per cent of foreign
exchange to the market. Therefore, this
situation is not solely a Central Bank issue.
The public should know there is no short-
age of US currency. I would like to reiterate
the recent advice given by Mr Larry Nath,
the president of the Bankers Association,
for clients to keep checking in with their
banks for US currency. The foreign
exchange situation will improve. Central
Bank supplied US$250 million to autho-
rised dealers in the past two weeks alone.
This, combined with higher conversions
by energy companies in June, means there
will be sufficient foreign exchange supply
to meet demand.
Q: Will such uncertainty not
lead to hoarding, the creation of a
black market and, inevitably, the
depreciation of the exchange rate?
A:Again, there is no shortage of
foreign exchange. The country has suf-
ficient foreign exchange reserves. The
public should not panic as this will create
an artificial demand. At the end of May
2014 there was an excess supply of US$75
million in the banking system.
Q: Are you prepared to con-
cede that the April 1 forex allocation
system has failed and are you pre-
pared to make the necessary changes
to prevent T&T s foreign reserves
from being run down to prop up the
rate?A:The improvements made to the
20-year old foreign exchange allocation
system have not failed. To repeat what I
said earlier, if these improvements were
not made there would have been insuf-
ficient supplies to meet growing demands
in the US dollar market. This is presently
not the case.
The US dollar market is currently in
excess supply and can meet demand. The
factors contributing to rising demand for
foreign exchange will only continue to
increase exponentially. Pair this with a
20-year old system and what do you think
would have been the natural outcome?
In addition, the Central Bank s recent
interventions have targeted meeting imme-
diate trade-related demand, which benefits
the business community.
An examination of the US$200 million
intervention made on May 27 shows that
231 companies in the retail and distribution
sector obtained 38 per cent of the funds,
while 79 companies in the manufacturing
sector obtained 25 per cent of the funds.
Fourteen automobile companies got 11 per
cent of the funds.
• See Page A12
"The public should not
panic as this will create
an artificial demand. At
the end of May 2014,
there was an excess
supply of US$75 million
in the banking system."
The US dollar market
is currently in excess
supply and can meet
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