DecentDecentralized currencies in Trinidad and Tobagoralized Currencies in Trinidad and Tobago

8/12/2019 DecentDecentralized currencies in Trinidad and Tobagoralized Currencies in Trinidad and Tobago

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Decentralized currencies in Trinidad and

TobagoRationale and Outlook

Prepared for the TTCS by Richard Jobity

Saturday 14thJune, 2014


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Agenda

Decentralized currenciessome definitions? TT Economy 101

Functions of money

Role of the monetary authorities

(Quick) overview of he TT Financial system

So... decentralized currencies?

Conclusion

Outlook


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Some definitions

Digital currency

form of virtual currency or medium of exchange that is

electronically created and stored.

Some digital currencies, such as Bitcoin,

are cryptocurrencies. Like traditional money these

currencies may be used to buy physical goods and

services but could also be restricted to certain

communities such as for example for use inside an on-

line game or social network (Arscoin, etc)


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Virtual currency/virtual money has been defined as

"a type of unregulated, digital money, which is issued

and usually controlled by its developers, and used

and accepted among the members of a specificvirtual community (European Central Bank, 2012 )

"a medium of exchange that operates like

a currency in some environments, but does not have

all the attributes of real currency (US Department of

Treasury, 2013)


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The key attribute a virtual currency does not have

at this time is the status as legal tender


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Exports

Offshore

Exploration and

Production

Petrochemicals

LNG

Services

Onshore

Finance

Light Manufacturing

Construction

Services

State

(Government)

sector

Expenditure

Revenue

Foreign

exchange

earnings

SocialServices

Foreign Exchange

Spending

EmploymentPrices

Non-tradeables

(Real Estate)

TT Economic overview


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Linkages between petroleum sector and rest

of inland economy

PetroleumSector

Government

Sector Expenditure

Rest of theeconomy

Natural gas and petroleum products

Wages and salaries

Purchases of goods and services

Taxes and

other

payments to

government

Incentives to investors


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Dual sector & economic growth

Petroleum sector

Most of the investment takes place

in this sector

Growth and investment dependent

on exogenous factors

Growth opportunities depend on

international prices for oil and gas,

proven reserves

Growth possibilities in services

sector related to growth in

petroleum sector and petrochemical

industries

Non-Petroleum sector

Growth and investment dependent

on petroleum sector

Growth in non-oil sector dependent

on services

Lack of autonomy (growth in non-oil

sector highly dependent on oil

sector)

Relatively underdeveloped non-oil

tradeables sector


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TT: Plantation Economy?

1500 1600 1700 1800 1900 2000Subsistence farming Tobacco Cotton Sugar Cane Cocoa Oil Petrochemicals LNG ?

The plantation economy model posits that plantation

slavery and specialization in export of primarycommodities has marked the evolution of the

societies in which it existed.


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The legacy of institutions,

structures and behaviour

patterns of the plantationsystem are so deeply

entrenched that

adjustment tends to take

place as an adaptation

within the bounds of the

established framework

(Best 1968, p. 32)


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Trinidad and Tobago an enclave?

Export commodity concentration ratios,

average 1900-1913

Export commodity concentration ratios,

average 10 years after independence

First

product %

Second

Product % Enclave

First

product %

Second

Product % EnclaveTrinida

d and

Tobago

Banana

s 50 Sugar 16.9 Yes

Petr.

Product

s 75.1 Sugar 5.6 Yes

Source: Robinson, James A, and Jonathan H Conning. 2009. Enclaves and Development: An Empirical Assessment.

Studies in Comparative International Development 44: 359-385.


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We need to understand the grip of the founding

institution of the plantation in order to remove itsstranglehold on the dynamic for change ...

Normal relationship between State and business is

reversed.

Private sector (outside of the enclave, largely foreign-

owned resource companies) are dependent upon the

State for direct and indirect welfare gains, throughdisbursement of oil revenue.

- Homa Katouzian


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TT Financial System

Initially established to assist the merchant class (plantationowners)

Relatively stable

Veryconservative (as a result of the institutional failures ofthe 1980sWinsure, ITL, etc)

Imperfect competition between institutions, alongsideassociation with said institutions

Commercialbanking with associated retail (in keeping withplantation social structure)

Generally profitability from consumer lending &trade/manufacturing business

Not friendly to entrepreneurial initiatives or calls onservices outside favored customers


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Functions of money

Medium of exchange (intermediate the exchange of

goods and services, it is performing a function asa medium of exchange- avoids the inefficiencies of abarter system)

Unit of account ( standard numerical unit ofmeasurement of the market value of goods, services, and

other transactions.) Store of value (money must be able to be reliably saved,

stored, and retrievedand be predictably usable as amedium of exchange when it is retrieved)

Standard of deferred payment (an accepted way to

settle a debt) Measure of value (a standard measure and common

denomination of trade - basis for quoting and bargainingof prices (accounting systems). Essentially a method forcomparing the values of dissimilar objects)


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Role of the Monetary Authorities


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That said...

Can

decentralized

currencieswork?


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Institutional Framework

Government rules regulate all electronic currency (FI

Act 2008) including bitcoin & other electronic money

Existing monetary policy geared to stimulation ofeconomic growth in framework of stablefinancial

system

Fairly well-working conventional financial market, so

less explicit need for alternatives. FINANCIALMARKET GENERALLY ENJOYS CONFIDENCE OF

CLIENTELE


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International money transfers (which could be usedto buy bitcoin abroad) are restricted

Duties on the import of computer parts that could be

used to mine bitcoin(high-end graphics cards are

quite expensive) Cost of regulation and monitoring for the monetary

authorities disproportionate to use (for now)

How do you track these transactions?


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Limited market accessibility - not that easy to acquire if

you do not have access to foreign money

Requires a high level of digital skills

Not yetfulfiling the role of money

Not (yet) dependable - holding bitcoin is still risky

Potential for abuse (underground economy use)

NOT ISSUE OF POTENTIAL PUBLIC CONFIDENCE

(public have no problem using electronic money, c/cs,

Amazon credit, Apple store credit, Paypal, etc)

PROBLEMS ARE INSTITUTIONAL

Institutional deficits in information, monitoring, and participation


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Conclusion

Decentralized currencies are potentially disruptive The TT monetary authorities seek to maintain a

stable, well-regulated financial system

Decentralized currencies, like financial markets

cannotbe trusted to regulate themselves Regulatory nightmare

So no, not right now. BUT


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Outlook

Is this a case of a technology before its time?

DecentDecentralized currencies in Trinidad and Tobagoralized Currencies in Trinidad and Tobago

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