The Central Bank of Trinidad and Tobago is the central bank of Trinidad and Tobago. The Central Bank of Trinidad and Tobago is located in the Eric Williams Financial Complex. The complex consists of the central bank auditorium and two sky-scrapers, locally known as the twin towers.
The first tower houses the central bank of Trinidad and Tobago and the second tower houses the ministry of finance. It was only the second Central Bank to be established in the English-speaking Caribbean, the first being the
Bank of Jamaica which was established in 1960.
History
1945-1964
At the end of World War II, the financial sector was dominated and regulated by foreign institutions such as the British
Currency Board (1951). It was felt that these institutions administered policies that were not consistent with the domestic economic environment.
In 1964, the Central Bank of Trinidad & Tobago was established by an Act of Parliament. Its main functions were outlined as follows:
- Issue and redeem currency;
- Act as the Government’s banker;
- Promote financial stability;
- Manage the exchange rate;
- Maintain monetary stability.
1970-1989
This period can be described as one of the Bank's most trying periods. With falling oil prices and a fragile financial structure, the economy was faced with the prospect of near collapse. The Bank at this time played a more interventionist role within the economy by providing short-term liquidity to the commercial banks. However, this failed to prove a viable solution.
The Bank was then moved to close five National Financial Institutions as it was given ‘emergency powers’ by way of the amendments made to the Central Bank Act and Financial Sector Acts. It was in this period that the Deposit Insurance Corporation and Home Mortgage Bank were established. The Bank played a critical role in the institutional building of the financial sector.
The 1990s
This period was characterized by financial sector reform. As part of the Structural Adjustment policies adopted by the Government at this time, the bank embarked on the liberalization of the financial sector. This process was guided by the International Monetary Fund (IMF) and the World Bank. In 1993 the Bank achieved a landmark in its evolution: the creation of First Citizens' Bank by merging the National Commercial Bank (NCB), the Workers’ Bank and the Trinidad Co-operative Bank.
2000-Present Day
As the bank enters and operates in the 21st century, it is continuously evolving to improve its operations to meet and exceed international best practices. Today the Bank not only plays an important role in the financial sector but also in the overall development of the country.
Functions
The Central Bank Act of 1964 entrusts the Central Bank with a range of responsibilities, including:
- Issuing and redeeming currency;
The Central Bank is the only institution in the country which is authorized to issue and redeem currency notes and coins. This involves:
- Designing the currency;
- Maintaining integrity of the currency;
- Providing an adequate supply of currency to satisfy the needs of the public.
Design of the currency
The Bank, with the approval of the Ministry of Finance, takes decisions on the denomination, the substrate and the characteristics of notes and coins. The Bank engages the services of reputable printers and minters to produce these notes and coins.
Maintenance of the currency's integrity
Security features are key to preserving the integrity of the country’s currency notes. Some of the security features used include holograms, security threads, watermarks and micro printing.
Provision of an adequate supply of currency
In order to maintain a sufficient supply of notes and coins to meet the public’s demands, the Bank undertakes regular stock assessments and projections of currency needs.
- Developing and implementing monetary policy;
The Bank’s monetary policy framework has as its primary objectives, the maintenance of:
- A low and stable rate of inflation;
- An orderly foreign exchange market;
- An adequate level of foreign exchange reserves.
The Bank employs a range of both direct and indirect instruments to effect monetary policy. The indirect or market based instruments largely comprise open market operations and the use of a policy interest rate – the ‘Repo’ rate, while the direct instruments mainly involve use of the statutory reserve requirement. The Bank may also establish special facilities in order to add liquidity or to absorb excess liquidity from the financial system.
- Acting as banker and adviser to the Government;
In its role as banker to the Government, the Bank maintains deposit accounts, effects domestic and foreign currency transactions and provides advice relative to these matters.
Just as corporations and individuals hold deposit accounts at commercial banks, the Government holds deposit accounts at the Bank. These accounts are used for receiving funds, making payments and clearing cheques issued by the Government.
- Acting as banker to the commercial banks;
The Bank acts as banker to the commercial banks. All commercial banks maintain a deposit account at the Bank. These accounts are used to settle interbank transactions as well as for maintenance of a cash reserve requirement. The Bank provides liquidity to commercial banks through the Intraday Liquidity Facility (ILF).
The Bank is required, in conjunction with the commercial banks, to establish and maintain a Clearinghouse for cheques. The Clearinghouse operates each morning and transactions are settled daily over the RTGS.
- Issuing of securities on behalf of the Government;
The Bank issues securities (Treasury bills, notes and bonds) on behalf of the Government. It may also manage the issuance of bonds on behalf of state bodies. The issuance takes place through an automated auction system. A multiple price auction system is used for shorter dated securities - treasury bills (up to one year) and notes ( over one year to five years) while a single price auction system is used for bonds (over five years).
Treasury bills and notes are issued to the public through a system of Primary Dealers while the bonds are issued through a number of Government Securities Intermediaries. The Bank maintains an electronic depository for all securities issued and carries out the functions of Registrar and Paying Agent for these securities. The issuance and depository functions are contained within the Government Securities System (GSS). The depository is linked to the Real Time Gross Settlement System( RTGS) to facilitate the payment side of securities transactions.
- Managing the foreign exchange market and protecting the external value of the currency;
The Bank is responsible for the management of the Foreign Exchange Market in the public’s interest. Under the Exchange Control Act, the Bank licenses authorized dealers in foreign exchange which include commercial banks and non-bank financial institutions. The Bank has also licensed a number of institutions to operate as Bureaux de Change.
The Bank may intervene in the foreign exchange market to contain undue volatility in the exchange rate. Before the Bank makes a decision to intervene in the foreign exchange market, it assesses a number of variables including current economic conditions, competitiveness of the exchange rate, short-term imbalances and the level of international reserves.
In April 1993, Trinidad and Tobago adopted a floating exchange rate regime. Since then, the value of the Trinidad and Tobago dollar appreciates or depreciates in response to changes in supply and demand conditions in the foreign exchange market and the intervention policy of the Bank. In practice, the foreign exchange system is a managed float.
- Investing the country's external reserves and the HSF;
The Bank manages the country’s foreign exchange reserves according to well-established guidelines relating to:
- The preservation of the capital value of reserve assets;
- The maintenance of adequate liquid foreign assets to make debt service and other payments on behalf of the central government and for the Central Bank’s own account;
- Achieving an optimum rate of return on investments within well-defined risk parameters.
The Board of the Bank approves the broad operating framework and Strategic Asset Allocation (SAA). The daily management of the foreign exchange reserves is guided by the Reserve Operations Committee. The reserve management function includes the conduct of trading activity, the assessment of the performance of the reserves portfolio and risk management. A portion of the portfolio is managed internally and the remainder managed through a number of external managers.
The Heritage and Stabilization Fund Act No. 6 of 2007 states that the Board shall delegate the responsibilities for management of the Fund to the Bank. The Bank is responsible for the investment of assets and other resources of the Fund in accordance with the operational and investment guidelines developed by the Board.
- Fostering and promoting financial stability;
A stable financial system mitigates the potential for undue losses by depositors, policyholders and pension plan members from risks undertaken by banks, insurance companies and pension plans respectively.
The Central Bank promotes the soundness and stability of the financial system through:
- Supervision and Regulation of entities licensed by and registered with the Central Bank;
- Regular assessment of the financial performance of the sector;
- Maintenance of efficient payment systems.
Supervision and Regulation
The Bank regulates and supervises the banking sector, the non-bank deposit-taking institutions, the insurance industry and private pension plans registered with Board of Inland Revenue, by administering the relevant pieces of legislation.
Assessment of Financial Performance of the Sector
The Bank publishes reports twice annually on its analysis of the financial condition and performance of the financial services sector and the overall level of financial stability. An analysis of macro-prudential ratios and a regime of stress testing of the key risks in the sector form the basis of the Bank’s reporting.
Maintenance of Efficient Payment Systems
The Bank is required to license all operators of Payment Systems (other than the Central Bank) and oversee their operations. While the Bank exercises oversight of all payment systems, it focuses particularly on those systems that are deemed to be systemically important. Currently, these are determined to be the cheque clearing system, the local debit card system, LINX, the Automated Clearing House (ACH) and the Real Time Gross Settlement System (RTGS). The Payment System Oversight Framework consists of both on-site and off-site monitoring and focusing on the identification and management of risks.
- Conducting intelligence-gathering and research;
The Bank monitors domestic and international economic developments and presents its analyses in several publications including the Annual Economic Survey, Balance of Payments Report, Economic Bulletin, Monetary Policy Report and Financial Stability Report.
Mission Statement
"The Bank shall have as its purpose the promotion of such monetary, credit and exchange policies as would foster monetary and financial stability and public confidence and be favorable to the economy of Trinidad and Tobago".
Corporate Governance
Governance of the Central Bank of Trinidad and Tobago is prescribed in the Central Bank Act. The Act provides for a Board of Directors appointed by the President of the Republic for a three-year term. The day to day management of the Bank is entrusted to the Governor who is also the Chairman of the Board of Directors.
There are two Board Committees comprising non-Executive Directors. The Audit Committee is responsible for oversight of policy and strategic matters related to audit, risk management and corporate governance and the Human Resource Committee is responsible for compensation and key human resource management issues.
Board of Directors
The Central Bank Act provides for the appointment of a Board of Directors to manage the institution. Members of the Board are appointed by the President of the Republic of Trinidad and Tobago and comprise the Governor, not more than two Deputy Governors and not less than six other directors, two of whom may be from the Public Service. The two public service directors are to be drawn from the Ministry of Finance and from the Ministry (or appropriate Department of Government) responsible for economic planning. The other directors are selected from amongst persons drawn from diverse occupations and qualified by reason of their experience and capacity in matters relating to finance, economics, accountancy, industry, commerce, law and administration. The Board has specific statutory responsibilities in accordance with certain provisions of the Central Bank Act, 1964 and other governing legislation.
The Governor is the Chief Executive Officer and is charged with the day to day management, administration, direction and control of the business of the Bank with authority to act in all matters which are not specifically reserved for the Board.
Board Committees
The Board has appointed two committees, the Audit Committee and the Human Resource Committee, each consisting of only non-executive directors. Each committee is governed by a Charter that sets out the roles, responsibilities and authorities of its members.
The Audit Committee has responsibility for oversight of the Bank’s accounting and financial reporting processes, internal controls, internal and external audits, compliance and risk management.
The Human Resource Committee assists the Board in fulfilling its responsibilities for evaluating and approving the compensation policies and programmes of the Bank.
Internal Audit and Risk Management
The Bank has an established Operational Risk Framework and Programme which all Departments use to manage the risks and controls in their respective areas.
The Internal Audit and Risk Departments monitor, assess and make recommendations about the control environments established by the various Departments to manage their risks. The Internal Audit and Risk Management Departments also report to the Audit Committee of the Board.
Useful links
- Currency of Trinidad and Tobago:
- Trinidad dollar
- List of Central Banks:
- Central Banks
- Official website of Central Bank of Trinidad and Tobago:
- www.central-bank.org.tt
- Ministry of Finance and Economy of Republic of Trinidad and Tobago:
- www.finance.gov.tt