In a me­dia re­lease last Sat­ur­day, Fi­nance Min­is­ter Colm Im­bert made some com­ments on T&T’s for­eign ex­change sys­tem, in­clud­ing that this coun­try has an open econ­o­my with a free mar­ket sys­tem and that “for­eign ex­change con­trols were large­ly abol­ished 20 years ago in 1993, when the cur­ren­cy was float­ed.”

Ac­tu­al­ly, the for­eign ex­change con­trols were large­ly abol­ished 30 years ago in April 1993, not 20 years ago.

In his me­dia re­lease, Mr Im­bert said: “Tin­ker­ing with the sys­tem to achieve short term re­sults must there­fore be avoid­ed, al­though this is not to say that in­ter­ven­tions should not be made by the Gov­ern­ment when re­quired...”

He in­di­cat­ed that he met last week with the T&T Cham­ber and the Bankers As­so­ci­a­tion to dis­cuss “ways and means of mak­ing for­eign ex­change avail­able to lo­cal small and medi­um en­ter­pris­es (SMEs) to pur­chase ma­te­ri­als and sup­plies from their over­seas sup­pli­ers.”

Mr Im­bert al­so said that “it is ex­pect­ed that a mean­ing­ful so­lu­tion to the chal­lenges faced by SMEs in ac­cess­ing for­eign ex­change can be de­vel­oped and im­ple­ment­ed over the next six months.”

It is clear that, over time, SMEs in the re­tail sec­tor have in­creas­ing­ly turned to us­ing their cred­it cards to pay for for­eign goods and ser­vices. That is be­cause the SMEs worked out that cred­it cards are the on­ly way time-sen­si­tive pay­ments for their for­eign ac­qui­si­tions.

Ac­cord­ing to in­for­ma­tion from the Cen­tral Bank, be­tween Jan­u­ary and Ju­ly 2023, com­mer­cial banks used US$1.225 bil­lion to pay the for­eign charges on the cred­it cards is­sued to lo­cal in­di­vid­u­als and busi­ness­es.

That is 33 per cent of to­tal sales by au­tho­rised deal­ers for that pe­ri­od and near­ly dou­ble the US$640 mil­lion used by the re­tail and dis­tri­b­u­tion sec­tor to pay their for­eign bills.

Lo­cal­ly is­sued cred­it cards are the sin­gle largest call on the sale of for­eign ex­change in T&T, and the use of cred­it cards to make for­eign pay­ments in­creased by 24.6 per cent be­tween Jan­u­ary and Ju­ly 2023, com­pared to the same pe­ri­od in 2022.

On a dai­ly ba­sis, for the first sev­en months of this year, US$5.80 mil­lion was used to make for­eign pay­ments on lo­cal cred­it cards.

The ques­tion is this: Are lo­cal SMEs and in­di­vid­u­als on­ly us­ing their cred­it cards to make le­git­i­mate pur­chas­es of for­eign goods and ser­vices or is this a ruse to get for­eign ex­change out of T&T?

Here are four rea­sons why some in­di­vid­u­als and busi­ness­es in T&T may be opt­ing to hold funds in US dol­lars rather than TT dol­lars:

1. If some­thing is in short sup­ply, or dif­fi­cult to get, (as for­eign ex­change is) there is a ten­den­cy by in­di­vid­u­als and com­pa­nies to hoard, which the In­ter­na­tion­al Mon­e­tary Fund refers to as the pre­cau­tion­ary prin­ci­ple. This is es­pe­cial­ly true if the thing that is dif­fi­cult to get is be­ing sold at a sub­sidised price;

2. The cur­rent dif­fer­en­tial be­tween US and TT three-month trea­sury bills is 4.43 per cent, which is an in­cen­tive to hold mon­ey in the risk-free US-dol­lar in­vest­ment;

3. Nei­ther Gov­ern­ment nor the pri­vate sec­tor in­tro­duced a new mass-mar­ket in­vest­ment to sat­is­fy the liq­uid­i­ty cre­at­ed by the ter­mi­na­tion of the $6.1 bil­lion Cli­co In­vest­ment Fund in Jan­u­ary and the mat­u­ra­tion of the $1.2 bil­lion NIF bond in Au­gust;

4. The au­thor­i­ties have not done any­thing to sup­press the il­le­gal sale of for­eign ex­change from sources oth­er than au­tho­rised deal­ers, which is pro­hib­it­ed un­der the Ex­change Con­trol Act sec­tion 6 (1).