Dr Ash­ford Ma­haraj

I am a T&T cit­i­zen res­i­dent in the US and, as such, I gen­er­ate a se­ries of cash flows from con­sul­tan­cy ser­vices and in­vest­ments with­in the Unit­ed States. Thus, I earn in­come and de­fray ex­pense us­ing the US dol­lar (USD) which seems to be the hot top­ic of dis­cus­sion in T&T these days. There­fore, as a re­cip­i­ent of a reg­u­lar USD in­flows, I de­lib­er­ate­ly prac­tise a sense of Trin­bag­on­ian pa­tri­o­tism as a small part of help­ing im­prove the sup­ply of hard cur­ren­cies.

First, I make pur­chas­es of lo­cal brands like Ma­touk’s, Cold Cole, Chief and from my home­town’s re­tail out­lets in the US.

Sec­ond, when I vis­it Trinidad from the very out­set on my way to Port-of-Spain from Pi­ar­co Air­port, I di­rect the taxi dri­ver to al­low me a few min­utes at a Trinci­ty bank. There I would con­vert US cur­ren­cy in­to TT dol­lar notes and start trans­act­ing in TT dol­lars by pay­ing the taxi dri­ver.

Fi­nal­ly, my ex­pens­es in T&T are trans­act­ed by re­volv­ing US-dol­lar cred­it fa­cil­i­tat­ed by Visa Inc payable in TT dol­lars.

Let me move to a more ob­jec­tive ap­proach to the cur­ren­cy val­u­a­tion is­sue, which is front and cen­tre in both tra­di­tion­al and so­cial me­dia, giv­en that I do have ex­per­tise to share.

I am an Amer­i­can board-cer­ti­fied cred­it an­a­lyst (AFA®) with an earned PhD in fi­nance who pro­vides ex­pert opin­ions on cred­it analy­sis and fi­nan­cial mod­el­ling.

The dis­cus­sion in the me­dia and the mon­e­tary au­thor­i­ties seemed fo­cused on the de­mand side of the for­eign ex­change is­sue and less on the sup­ply side.

Trin­bag­o­ni­ans adopt a high propen­si­ty to sat­is­fy their crav­ing for in­stant grat­i­fi­ca­tion as op­pose to de­layed grat­i­fi­ca­tion via the ac­qui­si­tion of in­vest­ment prod­ucts.

We are very much aware that fin­ished pe­tro­le­um prod­ucts used to be a for­eign ex­change sup­pli­er, but are net users of USD to­day.

The huge down­ward move­ment on the sup­ply side in hard cur­ren­cies is not matched by the de­mand side for im­port­ing what was pre­vi­ous­ly an ex­port.

First it was sug­ar and its by-prod­ucts fol­lowed by gaso­line and re­lat­ed out­puts. Not to men­tion pub­lic poli­cies that has­tened the demise of in­dus­tri­al di­ver­si­fi­ca­tion at the Point Lisas In­dus­tri­al Es­tate.

Caribbean in­tel­lec­tu­als dur­ing the 1970s and 80s pur­sued a nar­ra­tive of un­equal in­ter­na­tion­al trade and pos­tu­lat­ed that the less-de­vel­oped coun­tries (like T&T) ex­port low-priced raw ma­te­ri­als and im­port high­er-priced man­u­fac­tured goods.

Let us as­sume the T&T au­thor­i­ties are gen­uine­ly in­ter­est­ed in di­ver­si­fy­ing away from a pri­ma­ry-based econ­o­my. If they were, they would have re­sist­ed peg­ging the 2025 bud­get to fu­tures in the oil and gas com­modi­ties mar­ket. What is even worst is they have mir­rored ex­pen­di­tures at a high­er oil price of US$77.80 per bar­rel of oil and a nat­ur­al gas price of US$3.59 per MMB­tu. How­ev­er, the World Bank is fore­cast­ing a price $73 for Brent crude and a Hen­ry Hub price of US $2.90 MMB­tu for nat­ur­al gas for 2025.

So, why is the TT dol­lar over­val­ued?

The truth is that the TT dol­lar ap­pre­ci­ates when more of it is de­mand­ed and de­pre­ci­ates when peo­ple sup­ply more of it and this was what I was do­ing by pur­chas­ing things in Trinidad. I was de­mand­ing TT dol­lars to buy T&T things and sup­ply­ing USD to T&T.

This sim­ple math­e­mat­i­cal rel­a­tiv­i­ty sug­gests that the TT dol­lar is over­val­ued based on da­ta com­piled by Ob­ser­va­to­ry of Eco­nom­ic Com­plex­i­ty (OEC). That da­ta showed that for the five-year pe­ri­od (2017-22) T&T’s im­ports from the USA grew at an an­nu­alised rate of 11.3 per cent, from US$1.78 bil­lion in 2017 to US$3.03 bil­lion in 2022.

Dur­ing the same pe­ri­od, T&T’s ex­ports to the USA in­creased at an an­nu­alised rate of 7.13 per cent, from US$3.48 bil­lion in 2017 to US$4.91 bil­lion in 2022.

Us­ing this dif­fer­en­tial and ty­ing it with the pre­vail­ing terms of trade, the ex­change rate must be at min­i­mum US$1 = TT$7.09, an over­val­u­a­tion of 4.6 per cent from the of­fi­cial gov­ern­ment’s rate.

The dis­e­qui­lib­ri­um in the ex­change rate is ev­i­dent by the fact that there are three pre­vail­ing prices against the man­aged float be­tween the US and TT dol­lars. Tra­di­tion­al me­dia out­lets re­port­ed rates be­tween TT$7.20-7.50 to US$1. So­cial me­dia chat­ter has it as high as TT$10 to US$1.

GraceKennedy Cam­bio fi­nan­cial in­ter­me­di­ary for No­vem­ber 29, 2024 is buy­ing $7.05 and sell­ing $7.89 per USD. The of­fi­cial rate by T&T’s mon­e­tary au­thor­i­ties is TT$ 6.78 to 6.80 per USD. My own sci­en­tif­ic es­ti­mate has it at TT$7.09 to US$1.

In con­clu­sion, the mon­e­tary au­thor­i­ties must seek to de­val­ue at least TT$7.09 per US$1 and stream­line for­eign ex­change al­lo­ca­tions with some pri­ori­tised al­lot­ments.

Ad­di­tion­al­ly, they must take steps to get in line with the IMF’s rec­om­men­da­tions to lib­er­alise its in­ter­ven­tion­ist for­eign ex­change poli­cies and take un­pre­ten­tious steps to­ward ex­port di­ver­si­fi­ca­tion.