— Former CBL Executive Governor Saleeby
A former Executive Governor of the Central Bank of Liberia (CBL), Elie E. Saleeby, has said that the current economic challenges, especially the loss in value of the local currency, cannot be a quick-fix, noting that de-dollarization of the Liberian economy will not automatically bring about the solutions Liberians are yearning for.
Dollarization means having both the United States and Liberian dollars as legal tender for the local economy, while de-dollarization involves moving away from the U.S. currency and allow the native currency to prevail as the only one of legal tender in Liberia.
Governor Saleeby said the role of money is to serve as a medium of exchange of market on the state of affairs, and the local currency has not been representing the state of affairs. “In fact, there would be greater challenges in a short time before and after the transition of the de-dollarization,” he said.
“Even if you de-dollarize, if you don’t have any fiscal discipline, you could have another situation,” he said.
Saleeby added that de-dollarization and switching to a single local currency is not a short-term initiative; it requires careful understanding and appreciation of the possible implications, required policy and actions, detailed planning and others.
According to Saleeby, de-dollarization can only be achieved in the medium to long-term, even though “I am not quite sure why this, itself, should be a primary objective; and this can only be achieved through the changes of the structural change in the economy, coupled with a strong macroeconomic management discipline, including, notably, fiscal discipline.”
He made these statements on Friday, September 27, 2019, when he served as one of the panelists at the second edition of the CBL Economic Forum, aimed at creating public awareness and understanding of CBL’s monetary policy and functions.
The forum, which was organized by the CBL, was held under the theme, “De-dollarization in Liberia: Implications for Effective Monetary Policy.” The forum on de-dollarization remains at the heart of important macroeconomic discussions, because of the perceived adverse implications of de-dollarization on the current monetary arrangement in Liberia.
Saleeby said those who perceive that dual currency would create monetary instability are incorrect, adding that, “This perception, in my view, is misinformed because the USD in past and current regimes have been virtually stable over time while the Liberian dollar has lost value at times.
“I will argue that the presence of the USD provides the market-driven barometers and measures the performance of the local economy and its currency,” he told the audience.
Saleeby reminded participants that Liberia is a high consuming, import-dependent economy, and once “we are not producing and exporting we will find a situation where we will need foreign exchange reserves.”
In his keynote address, Dr. Musa Dukuly, Deputy CBL Governor for Economic Policy, said over the last three years, management of inflationary pressure and exchange rate’s depreciation have become difficult for monetary authority, mainly reflective of weak foreign exchange buffers, dual currency regime and limited monetary policy instruments.
He said the macroeconomic situation has exacerbated the increasing level of dollarization in the economy, as the USD remains a predominant hedging instrument against the declining value of the domestic currency.
“About 66.7 percent of transactions in the economy are done in USD against the threshold of 30%, which reveals evidence of dollarization, while at the same time the national budget is stated in USD.
“Increasing use of the USD has constrained the implementation of effective monetary policy to attain price stability. Therefore, a policy aimed at tackling dollarization should be supported by broad economic discussions, debates and empirical research,” Dr. Dukuly said.
Geoffrey Oestreicher, International Monetary Fund (IMF) Resident Representative in Liberia, congratulated the government through the CBL for such forum, which came at a critical time when the country’s economy is at a pitfall.
Oestreicher said resorting to de-dollarization is not necessarily desirable at this time, adding, “Our experiences show that even in countries with macroeconomic performance, fiscal discipline and a stable domestic product, there’s always a degree of some de-dollarization; so it is good to de-dollarize but not at this time.”
CBL Executive Governor Nathanial Patray said the holding of this second economic forum is timely because it is to take place at a time of serious discussion on monetary matters, especially as it relates to the printing of new banknotes as was recommended by the recently held Economic Dialogue in Monrovia.
The forum was attended by the managing director of the United Bank for Africa (UBA), Lekan Balogun, who is also the Vice President of Liberia Bankers Association; Prof. Geegbae A. Geegbae, Vice President for Institutional Development and planning, University of Liberia (UL), among others.