The Central Bank of Liberia (CBL) has described as a misunderstanding of the facts, recent media reports suggesting that the CBL pumped L$8 billion into the economy in 2013.
According to the CBL, the assertion, which is suggested to have been made by Finance Minister Amara Mohammed Konneh, is not only wrong, but also shows the lack of understanding of the movements in the monetary aggregates and their interpretation.
According to the CBL, monetary aggregates change over time, reflecting developments in an economy.
“As an economy expands, as reflected in the growth of gross domestic product (GDP), money supply will expand to facilitate economic transaction, which does not necessarily mean pumping of excess Liberian dollars into the economy,” the CBL said.
Facing the House of Representatives’ inquest on the economy including the continued depreciation of the Liberian dollar to the US dollar earlier this week, Finance Minister Amara M. Konneh intoned that there was more Liberian dollars on the market than expected. The Minister wondered how the exchange would decline when the CBL has pumped L$8 billion into the economy.
Ministry of Finance officials denied last night that Minister Konneh ever made said statement. A senior Finance Ministry official anonymously clarified that the Minister was rather quoting a CBL report that about L$8.5 billion is already in circulation.
But the CBL explained that the currency in circulation at a point in time is a stock arising from accumulation of changes over several years.
For example, the Bank explained that Liberian dollars in circulation at end-December, 2006 was L$2.81 billion and at end-November, 2013 was L$8.6 billion. “So, the first point to be made is that the CBL did not pump L$8.0 billion into the economy in 2013. We must be emphatic about this,” the Bank noted.
The CBL noted that monetary policy in 2013 was not expansionary, evidenced by the issuance of CBL T-bills during the last half of 2013 and up to January of 2014.
“The CBL bill is a new policy instrument introduced by the Bank to help control Liberian-dollar liquidity; that is, the amount of Liberian dollars in circulation. The issuance of these bills took L$2.7 billion out of circulation. This action is opposite to pumping of Liberian dollars into the economy,” the Bank stated.
The CBL argued that the sale of US dollars by the Central Bank through its auction program in 2013 also helped to reduce Liberian dollars in the market. “In other words,” the CBL added “the sale of US$72 million to the foreign exchange market mopped-up the equivalent amount of L$5.9 billion using the average exchange rate of L$81.8/US$1 at end-December 2013.”
The CBL reiterated to the public that its ongoing microfinance initiative with non-banked financial institutions shouldn’t be misconstrued. The CBL insisted that its stimulus initiatives for the most part were done in US dollars.
The Bank disclosed that the amount of US$22 million was deposited with local banks. The loans made by banks would, accordingly, have been made in US dollars. “It is the microfinance initiative that was totally done in Liberian dollars.
The Board of the CBL approved L$400 million for this purpose. It should be known that the funds under the microfinance initiative are already part of the L$8.6 billion stock of Liberian dollars referred to above,” said the Bank.
The CBL explained that the entire amount has not yet been disbursed. “Only around L$300 million has been placed with various non-bank financial institutions in all 15 counties.” The Bank insisted that it is difficult to see how those who continue to misinform the public came to the conclusion that L$300 to L$400 million would be a source of macroeconomic instability in an economy the size of Liberia’s economy.