The value of the Trinidad and Tobago dollar against foreign currencies has slipped to its lowest level since it was floated in 1993.
And hoarders of US dollars in the country are demanding and "warehousing" foreign currency in overseas accounts.
The TT dollar exchange rate has risen to $6.45 for US$1—the highest it has been since 1993 —and has been selling at commercial banks between $6.42 to as much as $6.45 for several weeks, Express checks indicated.
Central Bank Governor Ewart Williams said yesterday the excess demand has to be regulated, and the Bank cannot accede to increased requests.
"In the middle of November, we sold US$300 million to clear all the backlog and within a month, the same names that were cleared were back there. People are obviously not trusting the system and are putting their names in a queue," Williams said.
"If everyone simply applies for foreign exchange, simply to put it in accounts abroad, we will always have this excess demand, and this is something we need to resolve," he said.
Williams was speaking at a panel discussion hosted by the Trinidad and Tobago Chamber of Commerce on the Economic Outlook for 2011 at the chamber's Westmoorings office.
On Tuesday, the Downtown Owners and Merchants Association (DOMA) expressed concern over what they said was a "persistent" shortage in foreign currency and called on the Central Bank to provide reliable information on the country's foreign exchange situation.
Williams said the Bank would be able to meet the demand for foreign exchange that is needed for productivity, but the country could not sustain the current level of capital flight.
"Our small country cannot continue to afford the level of foreign exchange leakage—call it capital flight, if you like —that we have been financing in the past few years. Small countries like ours are not expected to be the source of net capital outflows—non-trade-related, on a sustainable basis," he said.
"Demand foreign exchange when you need it to meet import payments ...to pay debts, but not simply to keep in foreign accounts."
He said he was surprised the fluctuation in the exchange rate prompted discussions about a devaluation.
"For the last ten years, the exchange rate has changed by one per cent. The economic fundamentals have changed. The exchange rate is going to have more flexibility now."
He added, "When there is a surplus of foreign exchange...when, for instance, we have large unanticipated receipts, the exchange rate is going to come down. It is not a devaluation; $6.40 is not unusual. People need to prepare for more flexibility in the rate."
Bankers said there was no need for panic.
Richard Young, managing director Scotiabank of Trinidad and Tobago, said the slippage of the dollar was not an indication of a shortage of US funds, but could actually be indicative of a slowdown in the energy sector.
He said the climbing conversion rate could mean the local energy companies did not "convert as much as last year".
Young told the Express by phone that US dollar reserves were still high, but demand for payment and economic activity were down.
"There is less money in circulation because business demands are low, but there is increasing confidence in the US," he said. This growing confidence means local investors are returning money to the US portfolios and investment markets.
"Investors are looking to diversify their portfolios, converting to US and investing overseas and because land prices are still low in the US, people are purchasing property abroad," he said.
Finance Minister Winston Dookeran said in Parliament yesterday there was no need to devalue the TT dollar.