EXECUTIVE chairman of professional services network, EY Caribbean, Wade George, said yesterday that some Trinidad and Tobago residents are preferring to hold their wealth as they believe the TT dollar is likely to depreciate in value over the next four years.
George first made the comment on Tuesday morning as a panellist at a T&T Chamber of Commerce post-budget webinar.
He repeated the comment as a panellist at a similar post-budget webinar hosted by the Trinidad and Tobago Manufacturers’ Association (TTMA) at the Hyatt Regency hotel in Port of Spain on Tuesday afternoon.
Last week Monday, Imbert told the Spotlight on the Budget and the Economy function that the Government’s position remains “that no useful purpose will be served by devaluation, especially at this time when US dollar inflows are extremely low. And the prices are extremely low because of Covid-19 because it has depressed oil and gas prices and production”.
Imbert argued that as a result of the reduced US dollar inflows, the impact of a devaluation would lead to a minimal increase in Government revenue.
Speaking on the same stage as Imbert yesterday, George conceded that there were valid trade-offs against a decline in the value of the domestic currency, including concerns about the cost of living and inflation.
He said: “But the other side of the argument is that when you have a currency where there is an expectation in the marketplace that it is overvalued and therefore a depreciating asset, you will have a preponderance of market participants looking at other mechanisms as a store of value.
“Therefore, sometimes what you see—and we participated in a survey in 2019 in which a majority of respondents suggested that in their view the TT currency was going to depreciate over the next five years—is that there is a predisposition, therefore, to hold your assets in US dollars as a store of value.”
‘Free market is best’
George further argued the intervention by Government in markets was an “imperfect mechanism” that often leads to the misallocation of resources.
He was referring specifically to Imbert’s announcement that the Government intends to place a quota on the importation of both new and foreign used cars from next year, in order to reduce the usage of foreign exchange.
“The other part of this is that when you have to intervene in the market to protect imports, then there are some imperfections in that system. For example, the quota system on new cars, or foreign used cars, is a Government intervention, ostensibly, to ensure that the TT dollar is protected. The quota system is an imperfect mechanism and there are a number of issues that it raises, such as who benefits, who suffers, how is it going to be expensed and is there room for fairness?
“There is the invisible hand of the market versus the very visible hand of the government.”
Asked in the question and answer segment of the TTMA function if he was suggesting that exchange rate regime in T&T was encouraging people to hoard US dollars to protect their wealth, George said: “I was merely suggesting that every action—whether monetary, fiscal or otherwise—has consequences, some of which may be intended and some unintended.”
Referring again to the 2019 survey of the opinions of businesspeople, suggesting a majority expected the TT dollar to depreciate by 2024, George said given this perception of the exchange rate, “there would be pure economic rational behaviour that would suggest that persons may have a lack of confidence in the TT dollar. And they naturally see the US dollar, the reserve currency of the world, as a potential store of value.
“There is anecdotal evidence to suggest that that is occurring.”
But he added that if Government combines the incentives outlined in the 2021 budget with some business confidence, “there is a likelihood that persons, instead of using a store of value in a very low interest rate environment in the US, may well be minded to reinvest that into T&T and build the economy”.