T&T has a population of 1.3million people. It cannot produce all that it needs. T&T has to produce enough of particular goods and services for export, to earn foreign exchange in order to import what it requires. Therefore, T&T should be particularly concerned about its competitiveness and globalisation. The US has a population of some 250million people and in theory can produce all that its population requires except, given certain self imposed constraints, some energy products. However, firstly the US$ is an international currency and second, related to the first, the US consumer does not have to purchase foreign exchange to buy foreign goods- countries that export to the US accept US$s in payment by any consumer. The rest of the world is really the financial back yard of the US with respect to import and export of goods and services- all done using the US$ (‘The Borderless World’- Kenichi Ohmae). Foreign (to the US) goods and services have in many areas become cheaper than the corresponding US counterparts, due to competitiveness of the foreign producers- via both cheaper labour and more innovative technologies. Hence, US customers using US$s have become major users of foreign goods and services leading to ever increasing trade (actually current account) deficit difficulties for the US. This is now running at about US$60 million per month. Recently much of this is due to energy imports which resulted in many oil exporting governments accruing capital in large Sovereign Wealth Funds of US$ assets. These funds are causing the rest of the world some concern with respect to the fear of government investments in the private sector.

The US has to stimulate the growth of its own declining economy. In doing so it has to immediately revive the confidence of consumers and business in the economy and make US goods and services more competitive. Given the large internal US market, its economy, unlike T&T’s, can be driven by internal consumption. Hence the deterioration of the US economy according to the Fed. can be halted by putting more money into the hands of the US consumers and business via increasing credit through the reduction in bank prime rates (6% at present). In some quarters it is thought that the trade-deficit problem can be traced back to deficit Budget spending and tax relief by Bush’s governments culminating in the recent sub-prime mortgage crisis. But by simply increasing money supply, this could flow into the consumer purchase of foreign goods and services. The US producers have to become more competitive to which the devaluing US$ contributes. There is even talk about protecting the US market from imports, a repudiation of the idea of free trade! There is little immediate interest in stemming the depreciation of the US$.

But the depreciation of the US$ against other foreign currencies is in part driving the (US$) price of oil which in the US encourages both conservation and the move towards alternative energy use and research. Also this depreciation in the foreign exchange market is causing the positive feedback effect of foreign holders of US$ Funds wanting to change these into other stronger currencies- putting pressure for the further depreciation of the US$. Until the US economy turns around (hopefully in the short term) the Fed. will concentrate more on credit expansion and consumer spending on US goods. The interlinked stock markets of the world will respond in tandem to untoward events, of which a fall in the value of the US$ is one. Also the various Central Banks of the world have traditionally stepped in to cushion such shocks when they occur- though we see President Chavez calling for countries to dump their US$ reserves.

The US economy, then, in no way resembles that of the T&T, an energy exporting nation. Hence, keeping the TT$ pegged to that of the US and fiscal business as usual, are not good for our economy, despite the Central Bank Governor’s opinion that this has served us well in the past. One of the results of this peg with our governments’ prolific spending of its TT$ equivalent of our petroleum revenue is inflation in local prices, driving increased local production costs. In reflecting the change if economic power from the US the TT$ has either to be allowed to float or tied to a basket of currencies that includes the price of petroleum and government spending restricted to that required to save half of its energy income. Our major problem is the management of the risks to our economy- our exchange rate, inflation and the investment by the Central Bank of our foreign reserves into non-US$ financial assets.