– L$118 – L$120 = US$1
The unprecedented rise in the buying rate of the United States dollar to the Liberian dollar varies between L$118 and L$120 to US$1 at street vendors and forex bureaus in central Monrovia and Paynesville.
The Daily Observer has observed that up to yesterday in central Monrovia, the exchange rate of the US dollar to the Liberian dollar ranged from L$119 – L$120 per US$1, while in Paynesville, especially in the Red Light Market, the rate was L$118 – L$119 to US$1.
The selling rate of the United States dollar to the Liberian dollar at stores ranged between L$125 to L$130.
This contradicts the buying and selling rate of the Liberian dollar to the US dollar at the Central Bank of Liberia (CBL).
Up to June 24, 2017, the CBL announced the buying rate as L$112.75 to US$1 and to be sold at L$113.46 to US$1.
“These are indicative rates based on results of daily surveys of foreign exchange markets in Monrovia and selected cities,” the CBL explains in the daily exchange rate postings found on the front pages of a number of daily newspapers including the Daily Observer. “These rates are collected from the Central Bank, commercial banks, parallel markets and the licensed forex bureaus.” Tha CBL adds: “The rates are not set by the Central Bank of Liberia.”
Financial experts say the Liberian dollar would likely keep dipping against the US dollar from L$135 to US$1 and the US may steadily rise up to the eve of the October elections.
The hike of the US dollar to the Liberian dollar is obviously causing hardship for marketers and consumers because of the arbitrary increase in goods and services as well as high punishing interest repayments to commercial banks.
Two experts from the Ministry of Finance and Development Planning and the Central Bank of Liberia confided in the Daily Observer that the exchange rate is one of the most important determinants of a country’s relative level of economic health, and it plays a vital role in a country’s level of trade.
The experts said there are numerous factors which determine the hike in the exchange rate, and most especially when a country is perceived to have more political and economic risks. The pending elections amid threats from political parties, is causing a loss of confidence in the currency and the movement of capital.
They also said the hike is also an engagement in large-scale deficit financing by the Liberian government to pay public sector projects that are funded by the government.
“A large debt encourages inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper dollars in the future,” they said.
They also pinned the hike to the decline in the prices of the country’s major commodity exports, rising import demands and deteriorating terms of trade, the departure of concession companies and widespread capital flights, citing them as contributing factors to the increase in the depreciation of the Liberian dollar.
They also said a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies, and indicated that interest rates, inflation and exchange rates are all correlated and cause the exchange rate to rise.
“By manipulating interest rates, central and commercial banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise,” they said.
They added: “The impact of higher interest rates is mitigated, however, if inflation in the country is much higher than others, or if additional factors serve to drive the currency down. The opposite exists for decreasing interest rates – that is, lower interest rates tend to decrease exchange rates.”
The experts further argued that the exchange rate can hike if the country is spending more on foreign trade than it is earning, and if it is borrowing capital from foreign sources to make up the deficit. In other words, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreign states demand for their products. The excess demand for foreign currency lowers the country’s exchange rate until domestic goods and services are cheap enough for foreign states to buy, and foreign assets are too expensive to generate sales for domestic interests.
The opinions of the President and CBL
It may be recalled that the CBL has blamed the depreciation of the Liberian dollar to 7.1 percent against the US dollar mainly on account of declines in the prices of the country’s major commodity exports, rising import demand and deteriorating terms of trade.
But President Ellen Johnson Sirleaf said in addition to the reasons provided by the CBL, the departure of concession companies and widespread capital flights are contributing factors to the increase in the depreciation of the Liberian dollar.
“We have a problem with foreign exchange because many of our iron ore companies closed down due to the drop in the price of global commodity. So, the US dollar is not plenty like it used to be. Once you have small US dollars with plenty people chasing it, it puts strain on the Liberian dollar. Many people are transporting money through wires like Western Union and Money Gram to support their families abroad. Betting companies are also wiring the US dollar,” President Sirleaf said during her recent regular Simple Liberian English Chat with Torwon Sulonteh Brown of UNMIL Radio.
She indicated that the government’s economic management team is working to improve the situation in the shortest possible time and added that due to the lack of enough US dollars in the country, the government has employed a new measure of paying some public servants’ salaries in Liberian dollars.
As a consequence of the high exchange rate, Liberians who used to buy a 25kg bag of rice for L$1,600 at the rate of US$20 are now buying the same bag of rice for L$1,880 or US$20.