THE EDITOR: Copy of letter sent to Finance Minister Colm Imbert.
In June, the European Central Bank switched 500 million euros worth of its US dollar reserves to yuan, reflecting the increased use of the Chinese currency and Beijing’s importance as one of the euro area’s largest trading partners.
Effective October 1, 2016, the Chinese yuan joined the International Monetary Fund’s (IMF) basket of reserve currencies, its inclusion signalling an important milestone in the integration of the Chinese economy into the global financial system.
The IMF’s determination that the RMB is freely usable reflects China’s expanding role in global trade and the substantial increase in the international use and trading of the renminbi/yuan. The yuan joins the US dollar, the euro, the yen and British pound in the IMF’s special drawing rights basket, which determines currencies that countries can receive as part of IMF loans.
Almost one year later, on September 15, the Venezuelan government published the price of its oil and fuel in Chinese currency in what it called an effort to free the socialist-run country from the “tyranny of the dollar,” echoing a plan recently announced by President Nicolas Maduro. Venezuela’s decision follows plans announced by China to start a crude oil futures contract priced in yuan and convertible into gold, which could lead to the emergence of a new Asia-based crude oil benchmark.
It may not have escaped your attention that over the five-year period ended December 2016, TT imported $19.33 billion worth of goods from China. Converted at an average rate of $6.35 to the US dollar over the period, it would mean that importers had to convert approximately US$3.045 billion to satisfy their suppliers.
Considering the country’s urgent need to preserve USD, I would like to proffer the following relief mechanism for your consideration:
1. The Central Bank, upon immediate review, brings the Chinese yuan into its tradable basket of currencies.
2. Trinidadian manufacturers/exporters be incentivised to significantly broaden their footprint in Venezuela with all the attendant benefits of increased economies of scale, increased employment, increased investment in plant and equipment etc.
3. This may need to be a government-to-government arrangement initially.
4. This Venezuelan debt is settled in Chinese yuan, which at the moment is at parity with the TT dollar, ie, one to one.
5. With the Chinese yuan now in our financial system, goods and services sourced from China and other countries that trade in yuan, now numbering over 100, can now be settled in yuan, thereby conserving billions of US dollars.
Additionally, you may wish to consider applying higher levels of duties and taxes to goods that are generally accepted as “luxury goods,” eg champagne, caviar, specialist cheeses etc, thereby limiting demand and consequent need for foreign exchange usage. This will of course require consent at the Caricom level, but is not unusual.
Both of these proposals require political will but are relatively simple to implement and I am hopeful they find favourable consideration with you.
VASANT V BHARATH via e-mail