Authorities of the Central Bank of Liberia CBL), having received the mandate from the Legislature to print L$48.733 billion in new family of banknotes, are yet contending that the amount agreed upon is not even enought to meet the monetary demand of the economy.
According to CBL authorities, the amount in question is not much for our economy as many people may think; however, it is needed to solve some of the liquidity issues that the country is currently facing.
The bank authorities made these assertions on April 7, 2021 when they officially launched the maiden edition of a CBL radio program called, MONEY MATTERS on the state-rund radio, ELBC.
Those who appeared yesterday to launch the program were, Jefferson Karmoh, Director of Research at CBL, Musa Kamara, Senior Technical Advisor to the CBL Executive Governor, Miatta O. Kuteh for Payment System and Euphemia Swen Monmia, Deputy Director for Financial Markets.
The essence of the program, the bank said, is to inform and educate the public about the activities of the Bank with the hope of clearifying some of the misconceptions surrounding the monetary policies of the CBL.
“The L$48.733 billion is not too big as people may think. If you were to convert the amount in USD, you will come to realize that it is a small amount. We are taking into consideration the liquidity demand over the three years ahead,” said CBL authorities.
In their presentations, the CBL authorities further said that the L$4 billion that was printed was just a drop in the bucket and it could not meet the demand of the economy. The amount, though, is yet to be accounted for as new banknotes are to soon be added.
They also indicated that the worst that can happen to every Central Bank around is when they do not have adequate liquidity mainly domestic currency to settle the inflation rate.
CBL authorities noted: “This is why CBL submitted a proposal to the National Legislature to print new family banknotes to help solve the liquidity problem.
“Our goal is to reach a point when Liberian dollar will be the only currency to transact in, and that remains the strategic point of the CBL,” the group said.
The plenary of the House of Representatives on Thursday, March 18, 2021, during its regular session, adopted a resolution, signed by over fifty (50) Representatives to print new Liberian dollar banknotes to replace the current currency in circulation.
“We have been working on the signing of the resolution for the printing of the new Liberian dollar family banknote since last year, and the committee has been doing its work in the process. Following the long period of discussion on the matter, the House resolved today to adopt a resolution with the hope of having a timely concurrence by the Liberian Senate,” Speaker Bhofal Chambers told legislative reporters in an interview following the adoption of the resolution.
According to Speaker Chambers, the expected New Liberian dollars banknotes will be in the tone of L$48,734,734,000 (forty-eight billion, seven hundred and thirty-four million, seven hundred and thirty-four thousand Liberian dollars). The Speaker further told reporters that the government will spend over US$45 million to print the new banknotes. According to him, it will take three to six months to have the money in circulation.
It may be recalled that Executive Governor Tarlue requested members of the House of Representatives to approve the printing of L$48.733 billion new banknotes.
The CBL’s request was a reiteration of President George Weah’s recent appeal to Legislators in his 4th Annual Message on January 25, 2021, to act swiftly to resolve the situation before the next season of high demand for cash.
The President pleaded with the lawmakers to quickly approve the printing of a new family of Liberian banknotes to rescue the liquidity pressure on the Liberian dollar, which he termed as an aggravated increasing demand for the local currency.
“In the face of this liquidity situation, and while we endeavour to encourage our citizens to sustain the wider use of mobile money for transactions, the Executive will intensify consultation with the National Legislature to pursue currency reform, to promote monetary policy credibility and enhance confidence in the economy,” President Weah said.
The CBL further noted that the House’s approval will fast-track the systemic procurement process of printing and delivering new banknotes in the country which may take six to nine months.
Accordingly, L$35,769 billion will be printed in 2021 (at a cost of US$39.693 million); L$7.536 billion in 2022 (at the cost of US$3.630 million), and L$5.402 billion in 2023 (at a cost of US$2.199 million) to meet the current and medium-term currency demands.
“The estimated cost of printing the full L$48.733 billion (569.023 million pieces of paper banknotes) for the three years is approximately US$45.522 million. It is important to note that this estimated cost doesn’t include domestic logistics requirements for the replacement exercise and the costs of the designs, quality, and security features,” Governor Tarlue added.
However, during the CBL amended Act in 2020, the Legislature amended that the request for printing money should come directly from the Central Bank.
On the issue of Liquidity crunch, the bank officials explained that the volume of mutilated money is seriously posing a challenge to the Liberian dollar, not only to the banking system but the economy as a whole.
“Right now, our statistics show that at least 40 per cent of the liquidity circulating in the economy is mutilated. About ten billion Liberian of the twenty-five billion dollars has gotten mutilated already and not usable.”
While the economy has this confronting liquidity issue, it is yet unclear how much of the local currency is circulating in the system after the printing of L$4 billion and the coupled with the much talked-about L$16 billion that entered the economy three years ago without accountability yet.
“Another factor is the issue of non-performing loans. As people take money from commercial banks and they are not paying, it poses serious liquidity challenges,” the bank officials said.
They also stated that the primarily or core functions of banks are to take and give loans.
The CBL authorities said: “But there is no money going to them, it is hard to give out loans, which is crucial to the economic growth. People are not paying back loans. This is why banks look back to CBL to collect their reserves.
“We need to improve on our behaviours in terms of paying back loans owed to the bank. COVID has made it worse. Normally, non-performing loans should not exceed 5 percent, but today, we have about 20 per cent or even more.
“It has implication on the viability of the financial system. If you are finding it difficult to pay back, get back to the bank and negotiate on better terms for the repayment,” said Musa Kamara, an official of the CBL.