The Liberian National Bar Association (LNBA) did itself and the Liberian people a great favor when, at their National Convention last Thursday, the Bar invited the Liberia Bank for Development and Investment (LBDI) President, John Davies, to address them.
President Davies seized the opportunity to discuss one of the gravest pieces of legislation the National Legislature has made in recent years and to sound a warning of the traumatic consequences if ever this legislation were enforced.
Mr. Davies, who is also President of the Liberia Bankers Association (LBA), is one of the nation’s leading economic and financial experts. He addressed the Bar on the enactment by the Legislature of an Act declaring the Liberian dollar “as the sole currency of the country and legal tender.”
Mr. Davies made an urgent appeal for collaborative efforts to prevent the Act’s enforcement by the administration of President George Weah. If this law is enforced, he warned the Bar, it will lead the Liberian economy to experience a “looming crisis.”
“We have to join our voices in urging that all stakeholders in the governance, financial and monetary policy arena prevent the looming crisis the economy will experience should this Act become enforceable,” Mr. Davis averred, in his passionate address to the LNBA.
“Let us ensure,” he added, “that a strategic and skillful approach is taken in the implementation of the program.” What was it that caused this experienced and seasoned banker to be so vocal about this particular Act of Legislature?
According to our Legal Correspondent, Abednego Davis, the Liberian government in March last year (2017) introduced forced de-dollarization through an Act of Legislature, amending Part V, Section 19, Sub-section1 and 2 of the Act establishing the Central Bank of Liberia on March 18, 1999. The amendment sought to “declare the Liberian dollar as the sole currency and legal tender.”
By passage of this Act, the Legislature directed that “prices of all transactions in Liberia shall be solely indicated in Liberian dollars and cents and the Liberian dollar shall also be the sole currency for Accounting, Financial reporting and official purposes and disclosures in the country.” At the same time, Mr. Davies continued, the Act sought to maintain the United States dollar as the legal tender for the sole discharge of foreign public and private obligations.
Here is what alarms Mr. Davies about this Act: the use of the Liberian dollar as sole currency will cause local banking institutions to lose relationships with foreign corresponding banks to main their offshore accounts, which are traded with United States dollars. “Offshore accounts” are those held in foreign banks. Mr. Davis further explained, “Local banks will not be able to pay depositors in the event of a run on the bank for huge United States deposits, owing to the depreciation that dollars deposited may be nationalized.
“Moreover,” he said, “Credit dollarization will be affected, thus adversely impacting the banks’ balance sheets and creating more non-performing loans.” He added, “Some major concession agreements will be affected, especially those with U.S. dollars as contracting currency.” Mr. Davies further warned, “The balance of payments deficits will increase and the current pressure on the exchange rate will worsen, leading to further undermining of the CBL’s ability to manage the exchange rate.”
The main question we pose in this Editorial is how was it possible that the Legislature could have contrived such an Act without involving the people in the country who know about these matters, especially those at the Finance Ministry, the Banking Association and, most especially, the Central Bank of Liberia, which is at the center of this legislation?
Now that the President of the Bankers Association has spilled the beans on the economically and financially crippling consequences of this Act, the only thing we can say—and do so with urgency—is that the Legislature should immediately rethink this entire Act and, in the process, seriously engage the Bankers Association, the President of LBDI, the Finance Ministry officials and the Governor and technocrats of the Central Bank of Liberia.
All of these heads should meet with the Legislature and discuss ALL the issues surrounding the substance of this Act and come out with a reasonable and workable solution to all the problems. One thing our people should realize is that Liberia is not the only nation faced with such problems. And fortunately, we have our own economic and financial experts who know about these matters and are able to give sound advice on them.
There is yet another expert who has served not only as President of LBDI and Finance Minister but also as CBL Governor and also as an official of the World Bank—Elie Saleeby. He, too, knows a lot about these issues and can render very sound advice on them.
Please engage him, too. The answer, therefore, is team work which guarantees that there is no problem we cannot solve in this, Africa’s oldest independent Republic.