One of the ques­tions that was asked of Min­is­ter of Fi­nance, Colm Im­bert, at his vir­tu­al news con­fer­ence last week Tues­day, was whether it was sus­tain­able for the Cen­tral Bank to con­tin­ue sell­ing about US$1.2 bil­lion (US$100 mil­lion a month) of T&T’s for­eign re­serves to the au­tho­rised deal­ers of forex to ad­dress the deficit be­tween the de­mand for, and the sup­ply of forex.

That ques­tion was based on the An­nu­al Eco­nom­ic Sur­vey for 2023, which in­di­cat­ed that the de­mand for for­eign ex­change, as mea­sured by the sales of for­eign ex­change by au­tho­rised deal­ers to the pub­lic, reached US$6.228 bil­lion in 2023, and the sup­ply of for­eign ex­change was US$4.614 bil­lion, as mea­sured by the pur­chas­es of for­eign ex­change from the pub­lic by au­tho­rised deal­ers, last year.

Ac­cord­ing to the Cen­tral Bank re­port, “The net sales gap reached US$1.614 bil­lion dur­ing the pe­ri­od. To sup­port the mar­ket, the Cen­tral Bank sold US$1.342 bil­lion to au­tho­rised deal­ers.”

Mr Im­bert said the Gov­ern­ment, through the Cen­tral Bank, the Ex­im­bank of T&T, and a spe­cial win­dow for state en­ter­pris­es, in­ject­ed a lit­tle more than US$2 bil­lion in­to the mar­ket in 2023.

“We have been av­er­ag­ing around US$1.8 bil­lion, US$1.9 bil­lion, some­times US$2 bil­lion and we went to US$2.4 bil­lion quite re­cent­ly. That does de­plete the re­serves, of course. But we have been fac­ing this sit­u­a­tion since we came in 2015, and we have man­aged the process where we have not run out of for­eign ex­change,” said Im­bert.

“Of course, the in­jec­tion of for­eign ex­change, through the Cen­tral Bank and through the Ex­im­bank, etcetera, draws down our re­serves, but we have come up with many dif­fer­ent and in­no­v­a­tive ways of re­plen­ish­ing those re­serves. This is why we still have al­most US$6 bil­lion in re­serves af­ter nine years and es­pe­cial­ly af­ter COVID, where we had to use quite a bit of for­eign ex­change,” he said.

Ac­cord­ing to the da­ta cen­tre of the Cen­tral Bank, T&T’s net of­fi­cial for­eign re­serves for Sep­tem­ber 2024, amount­ed to $5.664 bil­lion. T&T’s net of­fi­cial for­eign re­serves de­clined by 45.84 per cent be­tween the end of Sep­tem­ber 2015, when the re­serves po­si­tion was US$10.539 bil­lion, and Sep­tem­ber 2024. The cur­rent ad­min­is­tra­tion was elect­ed on Sep­tem­ber 7, 2015.

So, T&T is de­plet­ing its net of­fi­cial for­eign re­serves by be­tween US$1.8 bil­lion and US$2.4 bil­lion a year, and is bor­row­ing US dol­lars in or­der to re­plen­ish our re­serves.

If T&T’s for­eign re­serves are de­plet­ing by five per cent a year—in a sys­tem in which US-dol­lar lim­its on cred­it cards are be­ing re­duced, and im­porters are strug­gling to find forex to pay for their goods—how long will it take for our for­eign re­serves to reach crit­i­cal lev­els?

And to what ex­tent does T&T’s fixed ex­change rate regime, as de­scribed by Mr Im­bert in a news re­lease on Sun­day, con­tribute to the de­ple­tion of our re­serves?

In that news re­lease, Mr Im­bert al­so said, “All a de­val­u­a­tion will do is cause a mas­sive spike in the cost of liv­ing and make every­thing more ex­pen­sive. It will not cre­ate any ad­di­tion­al US dol­lars for the coun­try or make forex more read­i­ly avail­able for or­di­nary cit­i­zens.

“By pre­tend­ing that we are sub­ject to the dic­tates of the IMF, there­fore, and con­stant­ly push­ing its de­val­u­a­tion agen­da for the last nine years, the Guardian is do­ing the pop­u­la­tion a dis­ser­vice.”

These two sen­tences re­quire some clar­i­fi­ca­tion and to be placed in con­text:

• It is true that fol­low­ing the flota­tion of the TT/US ex­change rate in April 1993, the in­fla­tion rate—as mea­sured by the year-on-year per­cent­age change in the Con­sumer Price In­dex—did in­crease.

Ac­cord­ing to in­for­ma­tion on the Cen­tral Bank’s da­ta cen­tre, for the three months be­fore April 1993, when the TT-dol­lar was float­ed, in­fla­tion av­er­aged 6.9 per cent. In­fla­tion peaked at 15 per cent in Oc­to­ber 1993, and grad­u­al­ly de­clined to 6.9 per cent in Au­gust 1994.

• It is true that in the SHORT TERM, the flota­tion of an ex­change rate does not cre­ate more US dol­lars. But a flota­tion does en­cour­age the repa­tri­a­tion of US dol­lars and it does en­cour­age com­pa­nies that fo­cussed on im­port­ing for dis­tri­b­u­tion to re­think their busi­ness mod­els and to fo­cus more on ex­port­ing and earn­ing forex.

On Sep­tem­ber 24, 2015, in this space, there was a col­umn writ­ten by me with the head­line, Pe­nalise ex­ports, sub­sidise im­ports? The date of the com­men­tary be­cause it came in be­tween the re­turn to of­fice of the Peo­ple’s Na­tion­al Move­ment and the new gov­ern­ment’s first bud­get in ear­ly Oc­to­ber.

In that com­men­tary, it was ar­gued, “Giv­en the re­duc­tion in en­er­gy tax rev­enue re­sult­ing from the de­cline in prices for T&T’s ex­port goods on the glob­al mar­ket, there is a re­quire­ment for the gov­ern­ment to slash ex­pen­di­ture, par­tic­u­lar­ly in the bloat­ed and out-of-con­trol al­lo­ca­tion to trans­fers and sub­si­dies.

“It is fair­ly com­mon knowl­edge that one of the main con­trib­u­tors to the fact that trans­fers and sub­si­dies ac­count for more than 50 per cent of T&T’s bud­gets is the fu­el sub­sidy.

“But ex­pect­ing the elim­i­na­tion of the fu­el sub­sidy–which this col­umn strong­ly sup­ports–to make an ap­pre­cia­ble dent in the de­mand for for­eign ex­change seems slight­ly un­re­al­is­tic, giv­en the fact that with oil prices at or be­low US$50 the quan­tum of sub­sidy is quite small...

“That means that if Fi­nance Min­is­ter Colm Im­bert were to re­move the fu­el sub­si­dies in his Oc­to­ber 5 bud­get pre­sen­ta­tion, the im­me­di­ate im­pact on trans­port costs, and hence on ag­gre­gate de­mand in the econ­o­my, would be small­er than if the mea­sure was con­sid­ered for the 2015 bud­get.

• The Guardian has not been push­ing its de­val­u­a­tion agen­da for the last nine years. Be­fore last Sun­day, I be­lieve the Guardian’s ed­i­to­r­i­al po­si­tion was that it was not giv­ing a po­si­tion on the is­sue of de­val­u­a­tion.

Last Sun­day, the Guardian ed­i­to­r­i­al stat­ed, “At­tempt­ing to solve the prob­lem with bu­reau­crat­ic de­vices or by in­ves­ti­gat­ing com­mer­cial banks are not mar­ket-dri­ven so­lu­tions. De­mand for forex is greater than sup­ply and short­age re­quires a mar­ket ad­just­ment, ei­ther by in­creas­ing the sup­ply or by let­ting the float­ing rate mech­a­nism work.”

That is hard­ly an out­right call for the flota­tion of the TT dol­lar. Rather it is a call to en­sure that the sys­tem does not re­strict ac­cess to forex in a way that pre­vents busi­ness­peo­ple from pay­ing for their im­ports in a time­ly fash­ion or from com­mer­cial banks to re­duce the US-dol­lar lim­it on cred­it cards;

It is true that this col­umn has ad­vo­cat­ed pe­ri­od­i­cal­ly for the flota­tion of the TT-dol­lar since 2013. But this colum­nist does not dic­tate the Guardian’s po­si­tion on is­sues and this col­umn has nev­er ad­vo­cat­ed a de­val­u­a­tion of the ex­change rate.

Al­so, there is a dif­fer­ence be­tween the de­val­u­a­tion of an ex­change rate and the flota­tion of an ex­change rate.

De­val­u­a­tion is a dis­crete, of­fi­cial re­duc­tion in the val­ue of a coun­try’s cur­ren­cy with­in a fixed ex­change rate sys­tem.

A float­ing ex­change rate is one where the val­ue of a coun­try’s cur­ren­cy val­ue is de­ter­mined by the rel­a­tive sup­ply and de­mand of oth­er cur­ren­cies.

In April 1993, what the then Min­is­ter of Fi­nance, Wen­dell Mot­t­ley, in­tro­duced was a man­aged float in which the Cen­tral Bank in­ter­vened pe­ri­od­i­cal­ly to sell forex to the mar­ket, when it was short.

In oth­er words, it is my un­der­stand­ing that the Cen­tral Bank con­trolled the pace of de­pre­ci­a­tion of the TT dol­lar.