Liberia Must Produce, Export to Stabilize Exchange Rate

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There may yet be no solution on the horizon to the soaring exchange rate between the United States Dollar and the Liberian Dollar for now.

The Central Bank of Liberia (CBL)'s policy statement of 2014 states that the only way to stabilize the rate is for Liberia to produce goods for domestic consumption and export.

The exchange rate between the US and Liberian Dollar stands at L$90 to US$1. And as the rate soars, so do prices of commodities (either local and imported goods or services) increase.

In Chapter IV, Section ‘A’ of CBL’s 2014 Policy Statement under “Monetary,” the Central Bank squarely stated, “It is important to note that the stability or value of the Liberian dollar largely depends on the ability of the economy to produce for both local consumption and export.  In this connection, the CBL has consistently emphasized the need to diversify the Liberian economy, attaching greater importance to the value-added activities.”

This assertion implies that amidst an abundance of natural resources, most of which are currently extracted and exported from the country, there is a need to produce finished goods from them for consumption and export in order to stabilize the exchange rate.

The escalating rate has affected the entire market system, and prices of goods and services left with the providers and sellers to determine.  For instance, gasoline up to press time Wednesday, June 25, was being sold for L$370, and transport fare from central Monrovia to Paynesville Red-light is L$80 by taxi, L$50 by bus.

Most Liberians lack the technical expertise to produce iron out of Iron Ore or plywood out of the logs extracted from the country.  Moreover, since the civil conflict came to an end 10 years ago there has not been a factory built to enhance production of goods from the existing resources here.

Most students enrolling at universities nowadays are studying Law, Health, Business, Public Administration and Education, and the few in Engineering College at the University of Liberia are finding it difficult to get needed tools and materials to practice.

Amidst this predicament to stabilizing the rate, the Central Bank of Liberia says it will increase the issuance of CBL notes and extend their maturities as may be necessary to manage Liberian-dollar liquidity.

However, the Bank notes that “A more effective strategy for liquidity management will require the Ministry of Finance to also increase the sale of T-bills to drive the deepening of the money market."

The Central Bank further noted that it will request the Ministry of Finance to consider sterilizing some of the proceeds from the T-bill auction.

“In the circumstances, its notes would be a supplementary monetary instrument, where the T-bills auction falls short of addressing the excess liquidity situation," the CBL said.

In addition to the strategy, CBL further notes that it intends to consider, along with MoF and the Ministry of State, outlining steps to be followed in the roadmap.

According to the bank, the goal of the roadmap is to pave the way for an orderly transition to a single currency regime, where the Liberian dollar will be the sole legal tender currency for domestic transactions.

For the country to transition to single currency, CBL noted with emphasis, the implementation of the roadmap requires a consensus by the relevant authorities, including the Legislature, noting, “It is advisable that the Administration should take the lead.”

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