The dinner was held in Paynesville City, outside Monrovia.
Delivering the keynote address at the program, Dr. Jones suggested that migrating to the Liberian dollar would be the best option for the Liberian economy. He warned, however, that such migration should be done with utmost care.
The CBL Executive Governor’s comments were supported few days later by Minister of Finance Amara M. Konneh, who warned that “any abrupt movement towards [a] single currency for Liberia, especially towards the Liberian dollar, would cause [a] shock in the economy.”
Konneh pointed out that although the Liberian dollar is the best currency for the economy, it is prudent for such migration to be done with care.
The observation and caveats of both senior government officials are enough to keep us on our guard. Not too many Liberians know, perhaps, that the world’s biggest economies, including the US, Britain, China, Japan, Russia, and France, amongst others, use dual currencies.
For example, the US dollar is a legal tender for all debt -- public and private -- in the world, while the British Pound and the Euro are legal tenders not only in Britain and European Union countries, but across the world. These currencies are used in China, France and other economies.
The difference could rest, perhaps, in the way the currency is used. For example, any Liberian can take the US dollar down to Waterside or Red-light markets and buy anything of his/her choice from anybody without necessarily changing that money into Liberian currency. This form of usage may not be prevalent in western economies. There is no doubt that Liberia has a long history of managing the dual currency regime.
It all started in 1847 when the country’s first currency, dubbed the Liberian dollar, was introduced and issued. According to Wikipedia, the free encyclopedia, the Liberian dollar was pegged to the United States dollar at par and circulated alongside the US dollar until 1907, when Liberia adopted the British West African pound, which was also pegged to sterling.
The British West African pound replaced the Liberian dollar in the same year, despite the fact that it was not served by the West African Currency Board. The British West African currency is now obsolete.
The Liberian dollar currency code, LRD, despite these circumstances, has been the official currency of Liberia since 1943. It is normally abbreviated $, or alternatively L$, or LD$ to distinguish it from other dollar-dominated currencies. It is also divided into 100 cents.
Also in 1847, the first coins, dubbed copper 1 and 2 cents coins, were issued and were the only Liberian coins until 1896, when a full coinage consisting of 1, 2, 10, 25 and 50 cents coins were introduced. The last issues were made in 1906. In 1907, aluminum 1⁄10 penny and cupro-nickel 1 penny coins were introduced in Liberia.
Both coins were holed. In 1908, cupro-nickel replaced aluminium in the 1⁄10 penny and, in 1911, holed; cupro-nickel ½ penny coins were introduced. In 1913, silver 3 and 6 pence, 1 and 2 shillings, all British currency, were also introduced. In 1920, brass replaced silver in these denominations.
In 1937, coins were also issued in denominations of ½, 1 and 2 cents. The first five-Liberian dollar coins were issued in 1982 and 1985 and pegged at par with the US dollar.
According to the 2009 Standard Catalog of World Coins (Krause Publications, Iola, WI), numerous commemorative coins (featuring U.S. Presidents, dinosaurs, Chinese Lunar-Zodiac animals, etc.) in denominations ranging from 1 to 2, 500 Dollars have been issued beginning in the 1970s through the present.
The Treasury Department of Liberia (Ministry of Finance) issued notes between 1857 and 1880 in denominations of 10 and 50 cents, 1, 2, 3, 5 and 10 dollars. It may be recalled that United States currency replaced the British West African pound in Liberia in 1935.
Starting in 1937, Liberia issued its own coins which circulated alongside US currency.
The flight of suitcase-loads of USD paper in the economic collapse following the April 12, 1980 coup d’état created a currency shortage, which was only exacerbated when the government began minting $5 coins. Unfortunately the 7-sided coins were the same size and weight as the one-dollar coin; this similarity was frequently abused by traders.
In the late 1980s the coins were largely replaced with a newly-designed $5 note modeled on the US greenback (“J. J. Roberts” notes).
The design was modified during the 1990-2004 civil wars to ostracize notes looted from the then National Bank of Liberia.
This effectively created two currency zones -- the new “Liberty” notes were legal tender in government-held areas (primarily Monrovia), while the old notes were legal tender in non-government areas. Each was of course illegal in the other territory.
Following the election of the Charles Taylor government in 1997 a new series of banknotes dated 1999 was introduced on March 29, 2000 in denominations of 5, 10, 20, 50 and 100 dollars, and these remain in current use, although they underwent a minor redesign in 2003 and have been issued with different printed years and signature combinations.
The Challenges of Dual Currency Regime
A major challenge in running a dual currency regime or using two legal tenders in an economy is capital flight.
Whenever two legal tenders are used parallel in an economy wherein one of the two currencies is very powerful and can be used worldwide, that economy will be exposed to possible capital flight by corrupt public officials and businesses.
The tendency of the government imposing fines and taxes in that foreign currency can be very high. The appetite for a wider use of the domestic or local legal tender by public officials and businesses will be infinitesimal thereby creating hardship for the ordinary people.
The Positive Impact of Dual Currency Regime
Easy accessibility to foreign exchange by the business community and individual citizens is high. It creates fair environment for competition relative supply and demand of foreign exchange or exchange rate viability.
Easy access to foreign exchange by businesses has the propensity to push businesses to sell their goods according fair market price relative to cost of goods on the world market, transportation, exchange rate, taxes, and other indicators, etc.
Why L$1, L$2 Banknotes should be Reintroduced
As it was done in the 19th Century, the government of Liberia through the National Legislature and the Central Bank of Liberia, as well as the Ministry of Finance, should consider the reintroduction of the L$1, and L$2 dollar banknotes.
As it is known technically, acceptability is a major characteristic of a currency. In the case of the L$ coins, the people (marketers and the general public) have refused to accept or trade in the L$ coin denominations because “they are difficult to tote.”
“The coin is too heavy to carry,” said Ma Korto, a palm oil seller at the Rally Time Market on UN Drive.
It may be recalled that former President Charles Taylor’s government attempted on many occasions to reintroduce the L$ coins, but failed.
The National Transitional Government of Liberia (NTGL) headed by former Chairman Charles Gyude Bryant also attempted fruitlessly to introduce the L$ coin on the market, but again failed miserably as marketers, and business people openly refused to sell their goods in L$ coin.
Our understanding is that the Central Bank of Liberia still has the coin denominations of our legal tender. The least denomination of the Liberian dollar banknote currency in circulation is the L$5. The effect this has on the economy is L$5 is largely being used to buy goods and services that should actually be sold for L$1. The inflation there is L$4. Strong political will is required to tackle this technical issue.
Liberia’s best bet is for the government to introduce L$1, and L$2 banknotes in order to exhaust this shock. Whatever the debate might be, and wherever it may lead, its clear that the time for the inevitable change in the structure of our currency is now.