REPUBLIC BANK’S announcement this month of a slash in the US-dollar spending limit on its customers’ credit cards was, from a certain vantage point, expected, given the longstanding issues concerning foreign exchange in this country.
However, the short notice given – the measure took effect less than a week after its announcement – coupled with the substantial 50 per cent reduction, went some way to provoking speculation that the move was forced by some unseen development.
Customers of the country’s largest bank, including those who were travelling as well as businesses, would have undoubtedly appreciated greater forewarning.
Even the Finance Ministry appeared to have been caught off guard, issuing a media release saying Finance Minister Colm Imbert had not issued any instructions, did not normally get involved in the day-to-day affairs of the bank, and had, following decades of practice, delegated foreign-exchange matters to the Central Bank and commercial banks.
However, the ministry expressed the expectation that going forward, there would be consultation.
Since April 1993, this country has operated under what is ostensibly a floating exchange rate regime, a free-market system in which the value of the TT dollar appreciates or depreciates in response to changes in supply and demand.
In practice, however, the system is a “managed float,” with the Central Bank intervening to contain undue volatility, based on a range of variables, including current economic conditions, competitiveness of the rate, short-term imbalances and the level of international reserves.
The bank was tasked with doing precisely that this month after Republic Bank’s announcement, with Imbert requesting a supplemental US$50 million injection into the system, in addition to the usual fortnightly injection.
As a result of this system, as well as constant complaints from businesses, over the years there have been calls for the TT dollar to be depreciated.
In 2021, Dr Dave Seerattan of UWI's Department of Economics called for the rate to be adjusted gently.
“You want the rate to descend very slowly and imperceptibly,” he said. “It allows the economic agents of the country to adjust without the country falling off the face of the cliff. Nobody recognised really that the rate had moved from $6.33 to $6.45, and to me, that is the most effective thing.”
Small and medium enterprises noticed, however, this month’s developments, which are likely to affect them most.
Yet behind the foreign-currency issue is not just the question of whether depreciation should occur, or whether regulation should be eased. The issue is, and has always been, the need to reduce demand for foreign purchases and to bolster local production to ensure our economy is vibrant and sustainable.
We hope to hear more about this in next Monday’s budget, which needs to draw a connection between economic simulation, our currency issues and spending habits. Already, we have been told by successive governments that depreciation would have too heavy an impact and could have a deleterious effect on businesses.
If a balance must be struck, let it veer in favour of consumers and local productivity.