The Central Bank expected its recent US$500 million injection into the country’s foreign exchange system to be devoured.
Governor Jwala Rambarran said there was unncessary anxiety over the fact that it was entirely used up in a few days since the injection had been intended to eliminate a backlog in foreign exchange demand.
“Some of that demand involved payments to existing creditors for goods already purchased,” he said.
In his address at the Fifth Monetary Policy Forum at the Hyatt Regency in Port-of-Spain yesterday, Rambarran said the message of that US$500 million record sale was that “the insatiable demand for US dollars that exists in Trinidad and Tobago will always trump whatever distribution system is in place.” He said commercial banks, not the Central Bank, determine who gets foreign exchange, as well as when and how much they get.
He said falling energy exports have slowed conversions of US dollars by energy companies—the main source of inflows to the domestic foreign exchange market. In 2013, conversions of US dollars by energy companies amounted to US$4 billion but fell to US$3.7 billion last year and for the 11 months to November 2015 stood at around US$3 billion.
“In the month since Central Bank made its US$500 million intervention, I’ve been asked about 500 million times where all that money gone,” Rambarran said.
“Here’s the answer. The retail and distribution sector is the most voracious consumer of foreign exchange. It swallowed alomst US$4 1/2 billion or nearly one third of the total foreign exchange sold over the past three years.
“Five companies alone accounted for over US$1 billion of the total foreign exchange sales to the retail and distribution sector,” he said.
The second largest consumer of foreign exchange is the manufacturing sector which used up close to US$2 billion in 2013-2015, followed by car dealerships which iused US$1.3 billion or just under ten per cent of the total foreign exchange supply. (See Page A12)
Rambarran said the combination of lower supply and robust demand had led to a widening of the foreign exchange gap. The shortfall was US$1.2 billion in 2013 and has expanded significantly to US$2.4 billion for the first 11 months of 2015.
He said for the year so far the Central Bank has sold just under US$2.5 billion to authorised dealers—the highest level of foreign exchange intervention on record.
“I’ve been double damned for the foreign exchange policy in effect for the last 19 months. When I leave office in 19 months, the one thing I know you will remember me for is making you more aware of how we use the reserves and what we use it for.
“The irony is, the system that I implemented, while I was damned for it, was done to allow the already limited share of foreign exchange to reach more businesses directly, instead of having conglomerates jostle with other businesses at the commercial banks for foreign exchange,” Rambarran said.
“It gets even more ironic that on a few occasions those very conglomerates complained bitterly in public they weren’t getting enough, as I said damned if you do, damned if you don’t.”