Disclaimer: The comments and views expressed here are entirely my own and in no way, shape or form represents investment advice. Please remember this is an analysis using basic economic common sense. It’s not intended to help you pass Economics for CAPE or speak on TV panels.
Having said that, this is a more complex question than it seems and required me to do some Jessica Fletcher “Murder She Wrote” type investigating in between my musings about side chicks and making Chinatown arch memes.
First let’s start, as always, with the basics. Forex (USD) enters the financial system in two main ways, private sector entities that export goods and services that make deposits and the government that earns forex from taxes on the energy sector (by energy sector I mean the whole thing. I ain’t have the energy to talk about upstream, downstream, livestream, Crystal Stream, etc.).
So anyway, the CBTT purchases forex from the government and sells it to 12 authorized dealers (mainly banks) and 6 Bureaux de Change (places like UTC, Eastern and Grace Kennedy) to manage the exchange rate because we have a “dougla-rized” version of a floating exchange rate.
Ok good, so here are some of the reasons for the shortage:
- Low energy prices – T&T is an oil and gas economy, so lower energy prices mean lower taxes and less supply of forex. Remember the days when oil was over US$100? Well take a pic and frame it because that ain’t happening again any time soon.
- Lower energy output – basically we are earning less because of planned/unplanned shutdowns in our gas plants and lower production from maturing oil fields. We wringing them oil fields dry like the last suck in a salt prune, just now we go bite open the shell to eat the seed.
- Debt payments – As of July 2019 the country had US$3.9 billion in foreign debt. You feel international investors taking their interest payments in we monopoly money? That’s not even counting the Petrotrin US$ debt which the government so generously decided not only to exclude in the sale of the refinery but also told the would be purchasers “nah big cousin, no need to rush to pay us the US$700 million, it’s not like we have a shortage anything”. 🤨🤐
- As a nation we have a ravenous demand for forex. In 2018 the demand for forex exceeded supply by US$1.5 billion. That’s because we produce almost nothing locally, other than comess and bacchanal. Even the stuff we do manufacture locally the raw materials are imported. So given a smaller supply who do you think gonna get priority, car companies, groceries and hardware stores OR you who want to go on Amazon to get that new iPhone 1000XRLMNOP with the 25 cameras and rubbish battery? 🤔
So how come places like Jamaica don’t have this issue? Well I’m glad you asked. When Jamaicans migrate THEY send funds (known as remittances) back home to help their family, mine their side chick, pay for a dubplate etc. When Trinis migrate WE have to send money for them. They’re always like “send me a lil hundred “you-ess” Western Union nah”. Just to give you an idea of the difference, in 2017 Jamaicans living abroad sent US$1.8 billion back to “yard” while Trinis sent US$101 million, don’t ask me where that money went though.
In my humble opinion, one of the main causes of the shortage is the fact that the rate is being artificially maintained. If the rate was allowed to freely float, the price would increase to a point where demand and supply are equal and there’d be no shortage. Some experts suggest that rate is north of TT$10. Think about what that would do to an economy where almost everything is imported. Prices of everything would go higher than Monica Gellar’s voice when she quarrelling, Sekon Sta pants leg or Fireball’s “uh uh uh uh uh uh uuuuuhh”.
Now I am only commenting based on theory. In reality other behavioural factors such as hoarding is definitely a possibility. It’s human nature. When things are scarce people naturally hold back due to fear of running out. It could be forex, water, Chenette or plastic bags, people will hoard anything if they can’t trust a steady supply.
One final word of advice, be very careful where you deposit whatever USD you do have. There are some institutions that when you go to withdraw the same USD you gave them they want to give you the TTD equivalent. There are other institutions that gladly accept all the USD you have but when you go to make a withdrawal they only giving you a US$200 and “real prayers” because they done sell your USD and now you have to wait to get it back.
Happy Divali people.