To Stabilize Economy: ‘Engage in Currency Swap’

12
2016
Rep. Koon: "This theory is better to satisfy the public desire."

…Suggests Rep. Koon

With the ongoing debate on the controversies to print about L$35 billion new Liberian banknotes to help restore the ‘bad and broken economy,’ Montserrado County District #11 Representative, Richard Koon, has proposed that the government should downplay the printing of new money, and that the Central Bank of Liberia (CBL) should negotiate with other banks on ‘Currency Swap.’

This theory, according to research, is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal, and interest in another currency. At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.

Koon, an Accounting instructor at the University of Liberia, said the theory of ‘Currency Swap’ will have greater impact, and helps stabilizes prices on domestic commodities, as well as balances economy.

He said Liberia is heavily dependent on imported goods and uses US Dollars for transaction. Therefore, he said, the CBL should do the ‘Currency Swap’ with countries that are considered ‘Single Domestic Currency Nations’ or ‘Fully De-dollarized,’ such as Nigeria, Guinea, Ghana and the Ivory Coast.

“Let us look at Nigeria as a case. The Central Bank of Nigeria will deposit huge amount of Naira (₦) in CBL, and then the CBL will do likewise with the L$, that method is the ‘Currency Swap.’

“The two currencies will create an implied exchange rate (the established rate between Naira and Liberian Dollar). This approach will weaken the US$ to a greater extent, and strengthen the L$ also to a greater extent,’ Rep. Koon said.

Rep. Koon, who is a member of the House Public Account and Expenditure Committee (PAC), argued that most businessmen buy the US$ before going to import, and with currency swap, they will now take their huge L$ to the CBL in exchange for Naira ₦ before going to import goods from Nigeria, which will be vice versa.

“It will relieve pressure on the US dollar, and the CBL, working along with the Ministry of Commerce and industry will be able to take control of price regulation on these commodities. Not only do the prices have to reflect the changing tastes of its various suppliers’ segments of goods and services, but the prices must also be competitive with the prices of other goods and services manufactured and marketed globally. The price elasticity of demand (PED or Ed), or price sensitivity for products in Liberia varies between its suppliers and segments,” Rep. Koon said.

He said in recent years, in a bid for the People’s Republic of China (PRC) to internationalize their currency (Renminbi or RMB), China arranged bilateral currency swaps with central banks around the globe.

Three of Africa’s largest economies– Egypt, Nigeria and South Africa–are among the more than 30 central banks that have entered into these swap agreements.

Rep. Koon recalled how South Africa signed a US$4.75 billion swap agreement with China in 2015; Egypt, a US$2.62 billion swap in 2016; and Nigeria, a US$2.5 billion swap in 2018.

“These swaps make sense given the amount of trade between China, and these nations,” he said.

In 2017, trade between China and South Africa, Egypt and Nigeria amounted to US$23.5 billion, US$10.8 billion and US$13.8 billion respectively.

Thus, the swaps allow some trade to be invoiced in the counter parties’ currencies, helping ease dollar financing pressures. They also provide renminbi liquidity to the African countries and African currency liquidity to China. This should help boost trade and encourage closer ties.

“Nigeria’s central bank says it will help stabilize exchange rates,” he said.

Meanwhile, Rep. Koon has said doubt has been created in the mind of the public and partners as a result of the L$16 billion and the US$25 million investigations in the competencies of the Central Bank, and the Ministry of Finance and Development Planning officials negatively impacting public trust.

“Hence, printing of new currency in the midst of current financial crisis, and lack of trust could erode the intended policy impact,” Rep. Koon said.

12 COMMENTS

  1. Wow ! Creating a one stop shopping center for Liberia’s import. Nigeria ! While the Nigerian themselves are shopping around the world with US dollars for the most cheapest goods that their money can buy. Nairalazation of the Liberian economy and monetary system. Go back to the blackboard young man and stay there.

  2. Those days when Liberia lacked oil and other African nations teased Liberian petroleum potency, have past. We have oil wells now. We need no swap for oil or currency. We can maintain our own currency on par with any nation especially in Africa. The only remedy is to sifter the economy by abstracting the cream of the Liberian dollars by printing new notes to replace muted and corrupt notes (questionable keeps) to bring the factual standard of the Liberian currency to light. The CBL, after the printing, will be able to balance formula numbers in accordance with the circulation curve projected, to ease the supply of goods and services while segmenting the foreign currency infused, from the domestic Liberian dollars implanted in local commodities exchanged for finished imports. Not all domestic products need to be purchased with United States dollars yet the rate of returns of the U.S.D. back on time to the United States is so slow that the U.S. Government remnants such amounts left in Liberia as external remains. Talk Liberian currency. Leave foreign intakes until after printing the Liberian fresh clean new notes.
    Liberians need Liberian dollars to cover the quantity required to offset these unappropriated U.S. amounts or foreign notes in circulation for equation balancing. So print the new notes, stop staving the Liberian flow, and stop talking so called literature shit. You do not have enough money and our money might even be stronger than many African nations currencies right now. The value must be established first. Screw Nigerian mute, screw Guinea flop, value to Ghana or Ethiopian cash etc…etc.. We have our own currency ready to formulate in ECOWAS 2020 economic plan. Print the LIB numbers now otherwise the Liberian currency will soon print you.
    Write your own. Do not answer this box. Let Liberians know the facts of physics.

  3. In my humble opinion, Rep. Koon’s suggestion which calls for swapping money is nonsense! On the other hand, if Koon’s idea gains traction, (I hope it doesn’t) the countries he has mentioned are not much better off than Liberia. It would be economically suicidal for a country like Nigeria to swap its Niara for the Liberty dollar. What would be gained? The Nigerian Naira cannot be used to buy a car or a Keke in the US or India.

    So the big question is why not call for the return of the US dollar? Are the lawmakers of Liberia stupid, too proud or ashamed to use the US dollar? The country of Liberia is cash strapped. Proper economic planning is imperative. A suggestion such as the one that’s being floated by Koon will never slice the ice.

    It may sound funny to the reader at first blush. But my suggestion is worth considering. The lawmakers of Liberia earn $15,000 to $16,000 per month. That’s a lot of money to be paid to lawmakers and others who work in the upper echelons of the Liberian government. In order for money to be saved, a pay cut would be ideal in the “top ranks” of all government employees.

    I don’t give a hoot whether Koon moonlights by teaching at the University of Liberia. It’s okay to earn extra cash honestly. Two things bother me about Rep. Koon’s proposal:

    *. Koon’s yearly income is way too high. According to reliable records, Rep. Koon of Liberia earns more money yearly than his US counterpart. Liberia is poorer than the US. And,

    *. Rep. Koon’s suggestion which calls for swapping money on a temporary basis is bizaare. It’s a draconian idea. The proposal shouldn’t see the light of day. Koon should continue to tell his students at the University that:
    Assets + Liabilities = owner’s equity! Now, that’s accounting.

  4. Theory sometimes contradicts with the practical my people.
    Stop the political pressure and leave the bankers to do their job.

  5. The currency swap analysis being proposed by Rep. Koon is not quiet a workable economy stimulus for Liberia. I f for example in his words that we do a currencies swap with Nigeria for example, what happens if businesses were to be engaged in doing business in China, what happens. This is not any economy model that has been used and proven to have a success story for their economy.
    A currency swap, also known as a cross-currency swap, is an off-balance sheet transaction in which two parties exchange principal and interest in different currencies. … At the end of the agreement, they will swap again using the same exchange rate, closing out the deal. The current rate of the Naira to USD is 362.5 and the LRD rate to USD is 190, who benefits from who in this entire transaction, the Rep. is yet to make that public in his theory of swap. Everyone claiming to be economist and bringing his\her suggestion to solve our problem might just put us in a big mess. So let’s be careful as to what we suggest for economy solution.

    • This government doesn’t have a sound economic strategy to get the country out of this mess – they’re only interested in a quick fix. They think printing more currency will solve the economic problems – it’s crazy. Months ago, they told us there was too much LD in circulation resulting in higher inflation so they decided on a $25 million mop-up. We now know it was a scam. Now they say, there isn’t enough LD in circulation to pay salaries so they need to print more money. What are these so-called government economists smoking? This government has a huge trust deficit with the Liberian people.

  6. Can we just work to remove our dependency by producing what we need. Currency is only a medium of exchange. With such high unemployment, the govt need to focus more on Liberia’s self sufficiency than flying the globe begging everyone else for help. Commerce need to share the data they have on imports and govt should work to reverse the figures. For example, if we import 100k bags of rice in 2019; set a goal to make that 80k in 2020 by locally producing 20k bags of rice. All this takes time. Continuous growth. We must do it because no one else will do it for us. We can not be forever beggars.

  7. MR Koon where did you see the implementation of your suggestion ” currency swap ” and the success story? Your suggestion is totally outside of economics principles. You and George Weah have the same ideal because he is destroying all the economics principles that are needed to put the Liberian economy on track . Swap Liberian money for Nigeria money as you put it, deposit huge Nigerian Naira at the Liberian national bank. Are you really suggesting this stupidity and you are at the University Of Liberia teaching this same stupidity to people children? stupid Law maker you should be shame of yourself for such a suggestion. What a silly suggestion?

  8. I am my own man! I cannot and will not bow down to anyone’s pressure. Never. I have a God-given right to express myself. Any attempt to silence me will be met with a boomerang effect.

    The lawmakers of Liberia are usually referred to as “do nothing lawmakers”. No wonder they are labeled as such! They earn humongous salaries per annum, but yet, they do not meet their employers’ expectation.

    Who are the employers of the Liberian lawmakers? WE THE PEOPLE! The Liberian electorate. We will never be silenced through brute force or by pressure.

    The swapping of money between two countries is a B.C. (Before Christ) suggestion. A lawmaker who earns $15,000 per annum is expected to come up with a 21st century forward-looking economic suggestion.

    Rep. Koon should be ashamed of himself. It’s okay for him to teach Accounting at the University of Liberia. But it’s senseless for a BC economic idea to be put forth by him during this day and age.

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