Right time for TT to diversify financially

The US has been following a “strong dollar policy” since the 1990s. Its first attempt to produce it via the Plaza Accord (1985) failed; but the second attempt via the Louvre Accord (1987) succeeded.

This was part of the aggressive thrust to invest abroad and acquire capital competitively.

The United States’ Foreign Account Tax Compliance Act (FATCA) can be understood best in this context.

It is designed for the US to come to terms with the extent of US foreign investment and connections over the past 30 years or so.

As noted previously, it will also return information to the US on others (non-US) and on liquidity in each system; and yield an advantage to the US to be able to leverage those situations and funds to its benefit.

At the same time US economic “engines” based in China and certain other jurisdictions outside FATCA can be deployed in the leveraging process, to the gain of the US.

The plan to repatriate wealth to the US could involve a window when the US deliberately allows and even assists its currency to fall. It will not be the first or second time the US has done this. Notwithstanding that the US dollar is a currency of reserve, international conventions (Basel etc) do not block it.

A US dollar devaluation allows repatriation from foreign currency to US-dollar holdings.

But for the non-US community it strips US dollar cash power, asset and investment valuations including hedging, settled contract expectations, cash flows etc.

Should it materialise this time it will also hit very diversified investments worldwide. Also, it would dramatically flip the US trade balance.

For TT, a strong US dollar has helped underpin the value of the TT dollar relative to other currencies.

A US dollar devaluation will extract that positive component and put further pressure on the TT dollar; and significantly depreciate the Stabilisation Fund. And even if Hillary Clinton wins the US presidential election, the US can still take Trump’s direction.

Continued monetary easing going on today is consistent with the weakening of the US dollar.

Our nation should diversify financially as was done in the energy sector.

E GALY via email