Decentralized currencies in Trinidad and

Tobago
Rationale and Outlook
Prepared for the TTCS by Richard Jobity
Saturday 14
th
June, 2014
Agenda
Decentralized currencies some definitions?
TT Economy 101
Functions of money
Role of the monetary authorities
(Quick) overview of he TT Financial system
So... decentralized currencies?
Conclusion
Outlook

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)

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 specific
virtual 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)

The key attribute a virtual currency does not have
at this time is the status as legal tender
E
x
p
o
r
t
s

Offshore

Exploration and
Production
Petrochemicals
LNG
Services

Onshore

Finance
Light Manufacturing
Construction
Services
State
(Government)
sector
Expenditure
Revenue
F
o
r
e
i
g
n

e
x
c
h
a
n
g
e



e
a
r
n
i
n
g
s

Social
Services
Foreign Exchange
Spending
Employment
Prices
Non-tradeables
(Real Estate)
TT Economic overview
Linkages between petroleum sector and rest
of inland economy







Petroleum
Sector








Government
Sector


Expenditure








Rest of the
economy







Natural gas and petroleum products
Wages and salaries
Purchases of goods and services
Taxes and
other
payments to
government
Incentives to investors
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
TT: Plantation Economy?
1500 1600 1700 1800 1900 2000
Subsistence farming Tobacco Cotton Sugar Cane Cocoa Oil Petrochemicals LNG ?
The plantation economy model posits that plantation
slavery and specialization in export of primary
commodities has marked the evolution of the
societies in which it existed.
The legacy of institutions,
structures and behaviour
patterns of the plantation
system are so deeply
entrenched that
adjustment tends to take
place as an adaptation
within the bounds of the
established framework
(Best 1968, p. 32)
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 % Enclave
Trinida
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.
We need to understand the grip of the founding
institution of the plantation in order to remove its
stranglehold 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, through
disbursement of oil revenue.
- Homa Katouzian
TT Financial System
Initially established to assist the merchant class (plantation
owners)
Relatively stable
Very conservative (as a result of the institutional failures of
the 1980s Winsure, ITL, etc)
Imperfect competition between institutions, alongside
association with said institutions
Commercial banking with associated retail (in keeping with
plantation social structure)
Generally profitability from consumer lending &
trade/manufacturing business
Not friendly to entrepreneurial initiatives or calls on
services outside favored customers


Functions of money
Medium of exchange (intermediate the exchange of
goods and services, it is performing a function as
a medium of exchange - avoids the inefficiencies of a
barter system)
Unit of account ( standard numerical unit of
measurement of the market value of goods, services, and
other transactions.)
Store of value (money must be able to be reliably saved,
stored, and retrieved and be predictably usable as a
medium 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 bargaining
of prices (accounting systems). Essentially a method for
comparing the values of dissimilar objects)
Role of the Monetary Authorities
That said...



Can
decentralized
currencies
work?
So... decentralized currencies?
Institutional Framework

Government rules regulate all electronic currency (FI
Act 2008) including bitcoin & other electronic money
Existing monetary policy geared to stimulation of
economic growth in framework of stable financial
system
Fairly well-working conventional financial market, so
less explicit need for alternatives. FINANCIAL
MARKET GENERALLY ENJOYS CONFIDENCE OF
CLIENTELE


So... decentralized currencies?
International money transfers (which could be used
to 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?



So... decentralized currencies?
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 yet fulfiling 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 decits in information, monitoring, and participation


Conclusion
Decentralized currencies are potentially disruptive
The TT monetary authorities seek to maintain a
stable, well-regulated financial system
Decentralized currencies, like financial markets
cannot be trusted to regulate themselves
Regulatory nightmare

So no, not right now. BUT


Outlook
Is this a case of a technology before its time?