Analyzing the Economic Impact of Liberia’s Dual Currency Policy, A View From the Low-Level Square-table
By: Wonderr Koryenen Freeman
On February 23rd at the Monrovia City Hall, some of Liberia’s most well-known political and economic elites got together to talk about a perennial economic problem – Liberia’s dual currency policy. It was a “high-level” roundtable, so I wasn’t invited. I make no fuss about that! Like G. Henry Andrews, I am only too content with making my contribution from “where I sit” – with the masses at the “low-level” squaretable. And from where I sit, with the masses at the low-level square table, I am deeply disappointed at the outcome from this high-level roundtable. We were hopeful for the high-level roundtable, but at the end of the day, we the people at the “low level” squaretable wanted to see leadership exhibited. We wanted to see a decision in the interest of the masses. We wanted to see the long-awaited coronation of the Liberian dollar as the sole legal tender. But we were disappointed. Instead of moving closer to a declaration of the Liberia dollar as the sole legal tender, what we got was more of the same:“that Liberia is not ready yet for a single currency regime”; “that Liberia is a very “special” country and it must continue with its dual currency”; “that Liberia must not rush with this dual currency thing”; “that dual currency will go, but let’s do it “small small.” Of course the sad truth about the negative impact of this dual currency policy is that its greatest adverse impact is felt but those of us who sit at the low-level squaretable. So in this piece, I shall endeavor to prove that Liberia’s dual currency policy has no academic basis, no empirical basis and defies ordinary logic, and that the decision to continue this doomed policy is a disservice to the Liberia people. It underscores more and more why (come 2017) Liberia needs leaders with better judgment, better common sense; people who are prepared to dispense with Worldbank, IMF and Harvard University gibberish, if it doesn’t make sense!
Under a dual currency regime, the Liberia dollar will never gain strength (appreciate)
Back in the days (1982) when Sammy Doe understood the implication of the use of the US dollar, he simply ordered the use of the“7-Corners”, which later evolved into the” JJ Roberts”, and ultimately into the “Liberty”. He didn’t convene any “high-level” roundtable. He just sat on his “low-level” squaretable, applied some little common sense and said “no more US dollars, we’ll do just fine with our 7-corners.” That’s leadership, something our current crop of US-educated, US-obsessed, US [Green] card leaders have a tough time exhibiting. And so it was, all of a sudden, in the 1980s, Liberians and foreign residents alike began to build Liberia exponentially. But I don’t not intend in this piece to only appeal to common sense to show that the dual currency policy is not working for Liberia (it sure is working for those seated at the high-table!). I intend to take the argument to the high-table home pitch, academia, and challenge the assumption that somehow Liberia will fall apart by declaring the Liberian dollar as the sole legal tender.
Why Liberia needs a single currency NOW, the academic argument
In this section, I shall show that the Liberia economy is highly dollarized and that as long as our economy remains highly dollarized, the value of the Liberia dollar will continue to decline. The table and chart below are based on CBL annual reports (2006-2013), and contrary to the prevailing view at the high-level roundtable, Liberia has suffered long enough. It time to change course. It’s the height to fallacy to do the same thing over and over and again and expect a different result. The CBL and others at the roundtable need to go back to the data and look again!
3. That as long as Liberia continues to keep the dual currency policy in place, the Liberia dollar will continue to depreciate year after year and there is never going to be a time when the situation is going to get better, all by itself, or via a monetary policy. In fact, it is plain hubris to think that there can be monetary policy in an economy that is up to 70% dollarized.
The CBL started it FX auction since 2004. The Bank often touts its FX auction as a policy tool for taming the devaluation in the Liberia dollar. But nine (9) years after, in its 2013 report, the CBL writes viz: Of the total amount of US$373.1 million demanded in 2013, only US$72.0 million (19.3 percent) was provided by the CBL; resulting into an excess demand of US$301.1 million in 2013. This was translated into the upward pressure on the exchange rate. [Of course, the 19% success the CBL is claiming does not count those who don’t bother to go to the CBL to solve their FX problem. If those people are factored in (as evidenced by the wide international trade deficit of USD 660M [in 2013]), the CBL is in reality only addressing about 3-5% of the problem.
Perhaps this failure to stem the devaluation of the Liberia dollar, explains why the CBL decided to concentrate on microfinance (to distribute money to the marketing association and the “yanna” boys association), to make us forget the primary reason for the establishment of the CBL. Our Governor has received more “gowns and honors” than all the politicians in Liberia combined. But, gowning or nor gowning, we will not be fooled, according to the CBL Act of 1999, PART II §(3)(3a) the primary function of the CBL is to “achieve and maintain price stability in the Liberian economy”…. to “preserve the purchasing power of the national currency.” And on this score, the Bank has failed. We expected that leaders at the high-level roundtable to have been bold and call a spade and spade. But they didn’t, they prevaricated, equivocated and obfuscated a very simple issue – that the CBL avowed dual currency policy is a sham and must be abandoned – right NOW and not later on!
Why Liberia needs a single currency NOW, the empirical argument
In July of 1993, in Virginia, Liberia, a similar high-level roundtable was held. It was themed: symposium on the Liberian monetary system and the challenges for reform in the 1990s. At that meeting, a panelist, Christopher F. Konneh, then Deputy Governor of the National Bank of Liberia, called for the “the Liberian currency to be established as the sole Legal tender”. But in the end, the symposium, amongst other things, concluded that “a financial sector study be conducted to ascertain the form and manner through which a series of reform measures will be implemented [absolutely no resolution on the Liberian dollar being the sole legal tender] as was proposed by Chris Konneh.
Fast forward to 2015, twenty-two (22) years later, some of the very same individuals, converged at the Monrovia City Hall, to discuss the dual currency policy – what did they conclude – that Liberia is a special case and that it must continue to keep the dual currency policy in place – for now. Do we need another 22 years to appreciate that the dual currency policy is of no use and said policy must be abandoned if Liberia is to prosper economically? Why are our leaders making it to appear like the world would come to an end if the US dollars in not used in Liberia. With the exception of Zimbabwe (which uses half a dozen currencies), and which is in economic chaos, nowhere in Africa is the US Dollar used as a legal tender. But in Liberia, personal interests by our political elites always seem to trump the national interest. No wonder, old Tom always quipped “this too is Liberia”.
I find it incomprehensible that a sovereign state cannot divorce itself of the notion that it cannot survive without the use of another country’s currency. It’s the same notion that has got our leaders crisscrossing the globe asking for development aid, as opposed using our available resources wisely – engendering home-grown development! The largest economy in Africa, Nigeria, does not use the US dollar. The most sophisticated economy in Africa, South Africa, does not use the US dollar. The fastest growing economies in Africa, Ghana/Rwanda/Mozambique/Kenya etc, don’t use the US dollar. And they also get along just fine. Even the smallest economy in Africa, Sao Tome and Principe, does not use the US dollar, and no one predicts economic doom for them. So what is really our problem in Liberia? When are we going to run a sovereign country? When are our leaders going to think about our Nation’s prosperity first, instead of thinking about their children school fees in the US, their mortgages payments in the US or their rentals from the apartments in Mamba point?
“From where I sit” – and on behalf of those struggling at the “low-level”squaretable – it clear to me that given even another 22 years from now, the same caliber of leaders who gathered at this “high-level” roundtable will come the same conclusion (just as they did 22 years ago in Virginia, outside Monrovia) – that Liberians leaders are not yet ready to used the Liberian dollar as the sole legal tender in their country, Liberia. Imagine that? It’s a sad reality, but that is what is unfolding before our very eyes. That’s economic policymaking, Lib style!
About the Author: Atty. Wonderr Koryenen Freeman, LLM, MBA, is a Liberian lawyer, Accountant and a socio-economic commentator. He resides in Paynesville, Liberia with his wife and kids. Wonderr Freeman has penned a number of articles for local dailies and online blogs. Some of his related articles: The CBL Economic Gospel vs the Reality of a Perpetually-Sinking Liberia Dollar (02/2012); Liberia Nigeria Central Banks Thread Separate Paths on MSME Financing (11/2013). The Plain Truth About the Liberian Economy –an Outsider Perspective (01/2014); The Almighty US Dollar and the Dual Currency Policy, Liberia’s Porcupine Gut (03/2009). Atty. Freeman can be reached at email@example.comfirstname.lastname@example.org, facebook, googleplus, linkedin and tel. +231.777.888.188