‘Cash Scandal’- Ellen, CBL Ignored Warnings

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    Former President Ellen Johnson Sirleaf and the Central Bank of Liberia ignored expert opinions and warnings that their monetary policy decision to increase the money supply through printing of new currency will lead to high inflation and the corresponding economic crisis.

    But three years after the then Sirleaf administration was advised in 2016, those experts and critics have been proven right. Local and international reports released at end February, 2018 show the Central Bank of Liberia and the then President Sirleaf are to blame for prevailing economic difficulties in the country based on its actions and policies that is biting the country’s vast poor population.

    “The increase of banknotes in circulation may be a factor in the current rate of inflation in Liberia,” the report said.

    “Kroll understands that the rate of inflation (as at January 31, 2019) is approximately 25%. Further, the increase of banknotes in circulation may be a factor in the rapid depreciation of the LRD exchange rate between January 2018 and July 2018.

    Now, the poor state of the local currency has caused a general rise in the price level with essential commodities such as gasoline and food experiencing upward movement in prices.

    Consumers and entrepreneurs are currently feeling the pinch of the unhealthy market situation borne out of the President Sirleaf and the Central Bank’s decision to print mass quantity of banknotes and loosely releasing it into circulation.

    Former Auditor General John Morlu in his April, 2013 Article “The five Factors Causing Inflation in Liberia called the printing of more banknotes a bad policy that can only drive inflation.

    He said “In today’s Liberia, the fact is that more Liberian dollar being push on the economy is bad monetary policy. Printing more and more money without the aggregate output level to support it is bad policy. Adolph Hitler printed a lot of money in Germany to finance his World War II and he got hyperinflation and Germans suffered. In the 1980s, Mexico, Argentina, Brazil and so many poor countries could not pay their debts to multi-lateral institutions and their bilateral debts. They fooled themselves to think that the easiest way out was to just print more and more money and the result was their economies tanked due to skyrocketing inflation. In recent years, we have read Zimbabwe’s 100 Trillion Dollar Banknotes and the result has been a complete economic devastation and massive suffering of the people of Zimbabwe.”

    On August 1, 2016, Liberian economist Samuel Jackson told New Democrat the following when quizzed about government’s currency printing decision and the related implications:

    “Generally speaking, there is nothing technically wrong with printing bank notes or coins. Central banks routinely print notes to replace currency or to expand the money supply.    Thus the purpose of the printing of currency  must be clear and based on sound economics.  If the CBL is replacing mutilated or missing bank notes without expanding the money supply, there would be no adverse effect on the value of the Liberian dollar per se.  However, if they are tinkering with the value of the currency in circulation, such as increasing broad money, which is M2, defined as currency in circulation plus balances in checking accounts, it would change the ratio of Liberian dollars to US dollars in the money supply and have an inflationary impact.    According to the CBL Annual Report of 2015, 70 percent of M2 is denominated in US dollars.  That is called dollarization. Any time, 20 percent or more of your money supply is denominated in foreign currency, you are dollarized. 

    Money is a store of value and must be backed by productivity in the economy.  If you print money without added productivity, you are cheapening the value of your currency and you could have inflation with grave consequences such as increasing the cost of living. 

    Money must be portable and divisible.  Therefore printing higher denomination notes such as the 500 dollar note is not a bad thing, but it signals defacto devaluation of your currency.  They are accomplishing the principle of portability by printing higher value  bank notes because your currency is depreciating due to current account and trade deficits in the external sector.    On the issue of the coins, a currency must be divisible, but  I am still wondering why they are not using decimal in the coins but minting  whole coins  such as 5 and 20 dollars.  I  would need to get clarification from the CBL on the reason for printing higher value coins.

    This New Democrat news story of May 16, 2016 will give you an insight into how the scandal occurred and the culprits thereto.

    Money Crisis:

    Ellen Following Adolph Hitler

    May 15, 2016

    President Ellen Johnson-Sirleaf’s monetary policy seeking increase in the money supply is likened to 19th century German dictator Adolph Hitler’s economic idea that favors the printing of more currency to finance government.

    Johnson-Sirleaf has asked legislators to approve the printing of new banknotes to address the alleged shortage of the local currency and corresponding effects on the domestic economy.

    In her communication to the legislature dated Thursday March 3, 2016 President Sirleaf informed the lawmakers that the request is urgent in rescuing the national economy.

    Senate Chief Armah Jallah has signalled an initial rejection to the President’s money printing plead with a condition that the Central Bank, Which is the original source of the request be audited.

    Johnson-Sirleaf reported on 3 March, 2016 that she received two letters from the Central Bank of Liberia warning that the economy may be seriously affected due to the lack of local currency to meet National needs.

    Dr. Mills Jones authored the first letter of request on December 23, 2015 while the second letter dated February 19, 2016 was sent by the Acting Executive Governor Mr. Charles Sirleaf – the son of the President.

    The Central Bank of Liberia official report however, contradicts President Ellen Johnson-Sirleaf claim that the Liberian Dollar is in short supply.

    In spite of these requests for printing more banknotes, the Central Bank reported in its 2015 Annual Report that there was more Liberian Dollar in circulation at end November 2015.

    The Bank “Liberian Dollars in circulation at end November, 2015, stood at L$9,505.9million, reflecting a growth of 1.5 percent, from L$9,367.6 million at end December 2014.The growth was on account of a 3.1 percent rise in currency outside banks, which offset a 12.2 percent decline in currency in banks. The expansion of the currency held by the public, historically is characteristic of every festive season which is usually typical of higher consumer outlays. Of the total currency in circulation at the end of the review period, currency in the hands of the public accounted for 90.7 percent, up from 89.2 percent at end 2014.”

    This report clearly shows that there is more Liberian Dollar circulating in the economy. Further existing evidence that the local currency is huge supply is the current depreciation of the domestic currency.

    The Liberian Dollar is presently trading at L$90/US$1, indicating less supply of and more demand for US Dollar.

    Similar situation occurred in 2013 when the local currency experienced its first worst depreciation in decade.

    In September 2013, Finance and Development Planning Minister Amara Konneh provided the following explanations behind the decrease in the value of the Liberian Dollar.

    “The depreciation of the LD is being driven mainly by the structural imbalance between the supply of and demand for the US dollar in the market due to high and growing trade deficit with practically everything that is consumed in the Liberian economy being imported while exports receipts have somewhat stagnated.”

    “Another reason for the depreciation is the injection of more Liberian Dollars in the economy in the last six months. We are trading more in Liberian dollars now so the circulation is increasing.”

    “We recognized this is affecting the majority of Liberians who earn their living in LD since the market prices are

    often pegged to the US dollar because of our dual currency regime.”

    From 2013 to present, the currency crisis and the overall health of the economy remain unchanged.

    Again the CBL in its 2015 Annual Report said “ from provisional estimates, Liberia’ overall Balance of Payments position deteriorated to a deficit of US$51.8 million in 2015 from a deficit of 38.2 million in 2014, largely driven by 5.3 percent worsening in the current account deficit.

    Judging from this account, some economists and financial pundits have argued against the printing of more local currency with view that it could exacerbate the inflationary scenario in the country.

    Instead of using monetary expansion to finance its projects and programs, the administration should have sued fiscal policy – raise taxes, cut back on spending, and borrow, one government economist told this writer with agreement he should not be named.

    But here lies the government’s dilemma: it has raised taxes, and borrowed and with less than two years remaining towards its expiration, cut back on public spending, mainly capital projects would leave it with no tangible positive legacy.

    So, the only suitable option now seems to print more local currency and dump it on the market.

    Writes Festus Poquie