Flaws in Proposed Single Currency Regime

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LBDI CEO John B. S. Davies, III_web.jpg
John B. S. Davies, President, LBDI and President, LBA

Bankers’ Association President explains

The enactment into law by the 53rd Legislature declaring the Liberian dollar as the sole currency of the country and legal tender last Thursday dominated the Liberian National Bar Association’s (LNBA’s) Annual Assembly with John Davies, President of the Liberia Bankers’ Association (LBA), asking for collaborative efforts to prevent its enforcement by the administration of President George Manneh Weah.

Mr. Davies, who is also president of the Liberia Bank for Development and Investment (LBDI), argued that if the law were to be enforced by this government, it means the economy will experience “looming crisis.”

“We have to join our voices in urging that all stakeholders in the governance, financial and money policy arena prevent the looming crisis the economy will experience should this Act become enforceable,” Mr. Davies said, making a passionate appeal to the LNBA.

He continued, “Let us ensure that a strategic and skillful approach is taken in the implementation of this program.”

In March 2017, the Liberian government introduced forced de-dollarization through an Act of the Legislature, to amend Part V, Section 19, Sub-section 1 and 2 of the Act establishing the Central Bank of Liberia (CBL) on March 18, 1999.

The amendment sought to “declare the Liberian dollar as the sole currency and legal tender.”

The Legislature, by the passage of the Act, directed that “prices for all transactions in Liberia shall be solely indicated in Liberian dollars and cents and the Liberian dollar shall also be the sole currency for Accounting, Financial reporting and official purposes and disclosures in the country.”

At the same time, the Act sought to maintain the United States dollar as legal tender for the sole discharge of foreign public and private obligations.

However, Mr. Davies believes that the use of the Liberian dollar as sole currency will cause local banking institutions to lose relationships with foreign correspondent banks to maintain their offshore accounts (accounts held in foreign banks), which transactions are traded with United States dollars.

“Local banks will not be able to pay depositors in the event of a run on the bank for huge United States deposit, owing to the depreciation that dollar deposited may be nationalized,” Mr. Davies said.

Moreover, he said that “Credit dollarization will be affected, thus impacting the banks’ balance sheet adversely and creating more non-performing loans.

“Some major concession agreements will be affected, especially those with U.S. dollars as contracting currency,” according to Mr. Davies.

He continued, “balance of payments deficit will increase and the current pressure on the exchange rate will worsen, leading to further undermining of the CBL’s ability to manage the exchange rate.”

Davies further argued that the intent of the Act to retain the U.S. dollar as a legal tender and restrict its usage to settlement of foreign obligations as legislated is legally “ambiguous.”

“The LBA and the CBL made clear their grave concerns regarding the forced de-dollarization rather than phased implementation of the process as highlighted in this act,” Mr. Davies said.

The ambiguity, he argued, is evidenced by the fact that the Act did not identify any clear methodology for what is meant by foreign obligations for the purpose of transparency.

“Did they mean foreign public, foreign private obligations, foreign in terms of foreign designated obligations and vis-a-vis the utilization of the two legal tenders?” Davies wondered.

According to him, the Act was not the product of enough consultations between the legislature and economic stakeholders, especially the experts.

“The legislature did not note the eventual economic costs of the forced de-dollarization of the Liberian economy with the eventual passage of the Act,” Davies believed.

He recounted how, in October 2017, the Liberian dollar has depreciated 21 percent since 2013, and the pace of depreciation has increased since 2016.

In order to revitalize the economy, Davies suggested the challenge remains the actualization of policies aimed at economic diversification, increasing investment and improving balance of trade, sustained foreign direct investment, remittances, development of infrastructure and institutions, combating corruption and maintaining political stability and security.

“This picture clearly did not support the move to forced de-dollarization,” Mr. Davies disclosed.

His argument was centered on the topic “Economic and Financial Impact of Forced De-Dollarization on the Liberian Economy.”

Mr. Davies argued that the country’s economy is basically import-oriented and forced dollarization will further exacerbate the liquidity crisis.

“There is no guarantee that we will be able to handle the risks factor of the exchange rate, because most forced de-dollarization programs initiated by countries globally have ended with bad economic experiences and virtual re-dollarization. We are aware of the experiences of Mexico and Bolivia, which had a bad outcome of their forced de-dollarization programs,” he said.

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7 COMMENTS

  1. Why is anyone surprised that the last powers-that-be, who paid themselves compensation higher than what received by their counterparts in the richest nation on Planet Earth (US), would leave the nation with Liberian dollars after most illegally transferred billions of US dollars abroad in the past eleven years, and US $535 million in 2017 alone! If this single currency regime goes through, a poor man might need a suitcase full of Liberian dollars to buy a bag of rice – reminiscent of Ghana, which provoked Flight Lieutenant Jerry Rawlings’ bloodlust. Thanks Mr. Davies, some of our big shots don’t know what they’re playing with until, God forbid, it engulfs all of us in an inferno.

  2. Using one currency is a good idea, but it has to be done fairly. One of the reason there is pervasive rate of “Capital flight and corruption” to the highest level in Liberia is due to the using of the United States Dollars and the Liberian dollars simultaneously.

    I think let the National legislature, Judiciary, and Executive start paying themselves first and foremost in the Liberian dollars including the rest of government employees.

    You can not make a law and by-passed it by paying yourself in American Dollars while demanding the rest of the citizens to followed the enacted law on monetary policy. This is not democratic at all.

    If we decide to take out the US from the market, let those in higher positions start receiving their salaries in Liberian dollars in the varies banks across Liberia. The fact that we have this American dollars on our market is undermining the Liberians development agenda.

    When every body stop receiving their respective salaries in US dollars than the values of the Liberian dollars will definitely go up. These guys are not serious, they are just undermining the State with all these playboy decisions. Are you only targeting those in the diaspora who sending their remittances to their poor relatives in Liberia?

    Sitting down and passing law against few individuals who receiving their money from Western Union is an act of corruption and this will not be tolerated at all, because such monetary policy has or most start from the top down to the small man to the Western Union, Moneygram and the rest.

  3. In this ongoing saga, Davies’ argument is of the highest standard. Davies deserves to be commended for sticking to his guns. The country’s economic and bond rating cannot move a stone. More regrettably, Liberians have had no coins for nearly 17 years. It is dishonorable for Liberia to not have coins. Yet while this is of maximum importance, the lawmakers are determined to make the Liberian dollar the ultimate king of the land. What sense does it make to choose a particular currency as a country’s legal tender when there are no plans at all to introduce “coins” in the mix?

    Question: Can a potential buyer obtain a “Liberian Money Order” or a “Liberian Cashier’s Check” from any of the banks in Liberia? I guess the fairest question is whether the US dollar has caused economic and political problems for the Liberian market? If not, why trash the US dollar that has provided stability for over a century in Liberia? Why?

    Suggestion: The Liberian lawmakers need to soul-search by asking this question: Are we doing this in the best interest of those who elected us or are we acting improvidently?

  4. Wulu,
    I am not a Ghanaian apologist and never will I be. But, I am a top to bottom Maryland county Liberian.
    You question caught my imagination. In direct response to it, I offer two perspectives:
    1. The Ghanaians use their own currency because it’s in their best interest. We Liberians should not do things that Ghanaians do because their issues are not our issues. Although we are Africans like the Ghanaians, we must do things only if those things are in our best interest. Please note that there are many kinds of demoncracy. The state of Israel practices Parliamentary demoncracy. The USA practices Presidential or Jeffersonian demoncracy. Although the two countries cooperate in so many ways, their interests are not the same, and

    2. The Ghanaian economy is more stable than ours. Economic stability in Ghana has been sustained because of peaceful internal factors. For instance, the Ghanaians have not fought a bloody “uncivil” war neither has there been a coup or counter coup in Ghana for well over 25 years. Unlike Ghana, the Liberians were reluctantly embroiled in an uncivil war for almost 15 odd years. As a consequence of the mess that we found ourselves in, our economy is not as vibrant as the Ghanaian economy. As we Liberians reel from the onslaught of an uncivil war, good economic decisions should not made on an impulse. Otherwise, our economy will be unsustained.
    Finally In my view, the US dollar is not bothering us. Why trash it? The chicanery involved in this currency business is hypocritical. The very people who support and babble about a single currency use are the main ones who use the US dollar more often. Think about tgat for a moment. Given the reasons stated above, let’s do our business carefully. Okay Wulu?

  5. Wulu,
    I am not a Ghanaian apologist and never will I be. But, I am a top to bottom Maryland county Liberian.
    You question caught my imagination. In direct response to it, I offer two perspectives:
    1. The Ghanaians use their own currency because it’s in their best interest. We Liberians should not do things that Ghanaians do because their issues are not our issues. Although we are Africans like the Ghanaians, we must do things only if those things are in our best interest. Please note that there are many kinds of demoncracy. The state of Israel practices Parliamentary demoncracy. The USA practices Presidential or Jeffersonian demoncracy. Although the two countries cooperate in so many ways, their interests are not the same, and

    2. The Ghanaian economy is more stable than ours. Economic stability in Ghana has been sustained because of peaceful internal factors. For instance, the Ghanaians have not fought a bloody “uncivil” war neither has there been a coup or counter coup in Ghana for well over 25 years. Unlike Ghana, the Liberians were reluctantly embroiled in an uncivil war for almost 15 odd years. As a consequence of the mess that we found ourselves in, our economy is not as vibrant as the Ghanaian economy. As we Liberians reel from the onslaught of an uncivil war, good economic decisions should not made on an impulse. Otherwise, our economy will be unsustained.
    Finally In my view, the US dollar is not bothering us. Why trash it? The chicanery involved in this currency business is hypocritical. The very people who support and babble about a single currency use are the main ones who use the US dollar more often. Think about thad is thatt for a moment. Given the reasons stated above, let’s do our business carefully. Okay Wulu?

    Correction……
    The word is that, not “tgat”.

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