Roger Hosein cautions that CAPSS must address deeper production and foreign exchange challenges to succeed.
Regional central banks are advancing work on the Caricom Payments and Settlement System (CAPSS), with a pilot phase expected after further consultations and technical evaluations, according to an announcement by the Central Bank of Trinidad and Tobago in mid-September. The system is designed to enable faster, cheaper cross-border payments in local currencies, potentially cutting transaction costs and reducing dependence on foreign reserve currencies for regional commerce.
However, University of the West Indies Professor of Economics Roger Hosein cautions that CAPSS should not be viewed as a complete solution to the region’s trade challenges. In analysis shared with the Sunday Business Guardian, Hosein explains that while the system could reduce the use of US dollars in settling regional transactions, it cannot address the dollar content embedded in the production process itself. He illustrates this concern with a practical example: a Trinidad and Tobago company expanding sales into Caricom through CAPSS might still require US dollars to purchase machinery, technology, packaging, and raw materials from outside the region—meaning increased regional exports could simultaneously increase demand for scarce hard currency.
Hostein emphasizes a critical distinction between gross export value and net foreign exchange earnings. He argues that export policy should increasingly differentiate between headline export figures, domestic value added, and actual hard currency retained after accounting for imported inputs. A regional export generating US$25 million in gross sales but requiring US$18 million in imported inputs contributes far less to a country’s external financing capacity than the headline figure suggests. The more important measure, he contends, is the usable hard currency generated after production-related imports are deducted.
The economist stresses that Trinidad and Tobago must continue generating foreign exchange beyond the regional market, since intra-Caricom trade cannot automatically replace hard-currency-generating exports. A regional export with high domestic input content could deliver greater national benefit than a larger export heavily dependent on imported inputs, he notes, suggesting that policy should focus on maximizing domestic income and foreign exchange retained after production costs.
Economist Dr. Anthony Gonzales acknowledged the difficulty in predicting whether CAPSS will have a positive or negative impact, noting that the pilot scheme approach is sensible and that examining Africa’s experience could provide useful insights. Gonzales also observed that more countries are conducting bilateral trade while bypassing the US dollar, though he cautioned that intra-regional Caricom trade remains small relative to extra-regional commerce, limiting the potential gains from such a system.
The Central Bank of T&T announced on September 18 that regional central banks were advancing work on CAPSS, with a pilot expected after further consultations and technical evaluations in the coming months. CAPSS is intended to make regional payments faster, cheaper and more efficient while strengthening trade and economic integration among member states.
This analysis directly addresses a critical infrastructure initiative for Caribbean economies. The proposed CAPSS system could reshape how Caricom nations conduct intra-regional trade, potentially reducing transaction costs and currency conversion barriers that have long hampered Caribbean commerce. However, Hosein’s caution about underlying production and foreign exchange constraints reflects persistent structural challenges facing Caribbean economies—particularly their reliance on imported inputs and limited hard currency generation—making this debate central to regional economic development strategy.
Written & Edited by Orlyn Edwards. Published by Caribbean Air Force Media.
Category: Business · Island routing: Trinidad & Tobago