Trinidad and Tobago

Trinidad and Tobago switched its longstanding peg from the GBP to the USD in the mid-1970s. It floated its currency in 1993 but soon gravitated back towards exchange rate stability and, although no parity was ever announced, operated loose exchange rate targeting from 1997 onwards. Over time it moved towards indirect monetary instruments, but financial markets (including forex) remained relatively underdeveloped and reserve requirements continued to play a major role.

Years Targets and attainment Classification
1974-92 long-standing peg to GBP; range of banks, one owned by government and others mostly foreign-owned or related but locally incorporated, plus various nonbank financial institutions; central bank lends to government within limits and has ability to use variety of instruments, but relies on reserve and liquidity requirements, with periodic use of hire purchase controls, and moral suasion on allocation of credit and interest rates; small, open economy, in which government receives large but highly variable revenues from oil and gas production and exports, and gives some aid to other Caribbean states; May 1976 peg switched to USD with appreciation that corrects depreciation (with GBP) since end-1975; 1979 secondary (mainly holdings of treasury bills) and marginal in addition to existing basic reserve requirements; stock exchange set up 1981, initial rise in public and private sector new issues and secondary trading; downturn in oil price late 1981 (plus appreciation with USD and high domestic inflation) triggers deep and prolonged recession lasting for a decade; late 1983 forex budget for imports introduced, in addition to longstanding negative import list; 1984 marginal reserve requirement ended but basic requirement increased; large devaluation vs USD 1985 for non-essential items (to restore heavily eroded competitiveness), with essential items (c. 25% of imports) still  traded at old official rate; steeper fall in oil price 1986 leads to rise in budget deficit and central bank financing of it; 1986 various bank and nonbank financial difficulties, growing focus by central bank on supervision and regulation; start-1987 preferential exchange rate for essential items eliminated; selective credit controls and rediscounting used to greater extent through 1980s; 1988 devaluation vs USD within stabilisation and structural reform package (which includes phasing out by 1991 of secondary reserve requirement, to raise competition in treasury bill market), and some forex liberalisation 1990-1 augmented exchange rate fix AERF
1993-96 April 1993 currency devalued by 25% and floated, further forex and wider financial liberalisation, ongoing structural reform; 1994 all selective credit and interest rate controls abolished, reserve requirements raised; 1996 secondary bank reserves revived, OMOs started but suspended after inadequate bids in auctions, reserve requirements raised loosely structured discretion LSD
1997-2017 from 1997 more frequent temporary intervention plus moral suasion to support currency, which becomes with only occasional interruptions pegged de facto to USD (but no announced parity); some deposit and loan dollarisation; 1997 weakness of OMO operations complicates attempts to cut reserve requirements; new financial instruments used by banks to circumvent requirements, but coverage extended 1998 to include them; over time country becomes important regional financial centre; as of 2001 monetary policy aims at low inflation through liquidity management, and exchange rate stability; ongoing reforms to securities and money markets, improved financial supervision and regulation; 2002 overnight repo rate as key policy rate; 2003-4 reduction in reserve requirements plus special issues of government bonds, but reduction more than reversed 2007-8; monetary transmission mechanism is weak mainly because of dual structure of economy (energy vs non-energy) and recurring excess liquidity arising from oil revenues; limited immediate but stronger later effects from GFC; as of 2010 main monetary instruments are reserve requirements, OMOs (primary issues, since secondary market remains thin) and repo rate, while de facto peg limits scope for monetary policy and transmission from repo rate is weak; serious but temporary deterioration in statistics from mid-2013; forex market development hampered by role of central bank as main seller of foreign exchange (from oil revenues), with periodic forex shortages (though no parallel market); recurring  excess liquidity complicates monetary policy; late 2015 modest depreciation but forex shortages persist; 2014-16 oil price fall; 2016 further small depreciation loose exchange rate targeting LERT

Selected IMF references: RED 1975 pp25, 43-4; Exchange System – Change of Exchange Rate, June 1976 pp1, 8; RED 1977 p55; RED 1982 pp45, 71; RED 1983 pp26, 33, 44; RED 1985 pp33, 36, 49; RED 1986 pp2-3, 36, 39, 58; SR 1987 pp1-7, 9-10, 11-12; RED 1988 pp31-4, 45; RED 1990 pp33-5; SR 1990 p14; RED 1991 pp28-9, 31; SR 1992 p17; RED 1993 pp23-5; SR 1993 p3; EDSBI pp40-4; SI 1997 pp9, 12, 55; SR 1997 pp15-16; SR 1998 pp6-7, 11, 12-13; SR 1999 pp8-9, 13, 15; SR 2001 pp6, 13; SR 2003 pp18-19; SI 2004 pp31-7; SI 2006 pp15-20; SR 2008 pp6; SI 2011 pp18-20, 25-6; SR 2012 pp10-11; SR 2013 pp5, 15; SR 2014 pp4-5, 10-12, 18, 23; SR 2016 pp3-4, 8, 17-19; SR 2018 pp6, 14-16.

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