The role of a central bank in a country’s economic development includes: the promotion and maintenance of a rising level of production, employment and real income in a nation.
This is why “the Mission and Objectives of the Central Bank of Liberia is to maintain price stability and to ensure a sound banking and financial system, thereby contributing to sustainable economic development of the nation.
To this end, the Management of the Central Bank of Liberia is empowered by law to seek the achievement of its mission objectives through:
• Maintaining the value of the domestic currency and external reserves
• Pursuing appropriate interest and exchange rate policies
• Safeguarding the integrity of the financial sector
• Issuing notes and coins to meet the demand of the general public
• Conducting economic analysis and publishing economic and financial statistics
• Promoting and supporting the development of financial markets and efficient payment and settlement systems
• Advising the Government on economic and financial matters
Sadly, Liberia’s Central Bank has in recent years sidestepped its traditional functions and has become the main source of the country’s economic problems. It has lost complete control over price stability and has rendered the local currency, the Liberian dollar, worthless.
On March 8, this year, the International Monetary Fund adjusted the country’s growth rate by 91.4% from the high of 4.7% to the low of 0.4 percent, while placing inflation at 28% and exchange rate depreciation at 26% saying the situation was detrimental to the country’s poor. The chief reason for the downgrading of the country’s economy is because the CBL has been printing and loosely dumping the local currency on the market for purposes that are against the nation’s economic growth and development.
The United States government’s sponsored investigation into allegations regarding the disappearance of $15billion Liberian dollar leaves the Central Bank of Liberia’s image destroyed as a rogue entity that used systematic schemes to undermine the Liberian economy.
At this point, we can conclude that flawed macroeconomic policies pursued and implemented in post conflict Liberia with the direct assistance of a rogue central bank is the chief factor behind today’s economic crisis that is spreading poverty across the country.
In our editorial of April 2016, (Factors Associated with and Culprits in the Currency Crisis) we argued and now insist that the current financial mess in Liberia may have been triggered by the Central Bank of Liberia’s decision to give loans in Liberian dollars from 2009.
The loans led to increased supply of Liberian dollars in the financial sector without a corresponding increase in the supply of US dollars in local circulation.
The Central Bank’s microfinance loans under the scheme “Strategic Placement of Reserves” amounted to L$644.1 million; and by 2013 the Bank reported that the market was demanding the total amount of US$373.1 million. However, it intervened on the foreign exchange market by infusing only US$72.0 million, or 19.3 percent of what was needed in US dollars to stabilize the financial market.
Thus by 2014, the Liberian dollar crashed downward in value with respect to the United States Dollar by 20.5 % from LD73/1USD to LD88/1USD.
To this day, consumers and entrepreneurs continue to witness its escalating depreciation with excruciating pain.
At the moment, the local currency is trading at LD$162 to 1$US.
Because foreign exchange earnings are been misused and or misappropriated, the Bank does not have the required international reserves to intervene in the market, so the crisis continues.
Crediting from the Central Bank has been another main driver of inflation. While it is not known how much the George Weah administration owes the Bank, the Johnson Sirleaf regime left office owing the CBL more than US$200million.
“This is detrimental to the living standards of the most vulnerable Liberians who earn and spend primarily in Liberian dollars and threatens the success of the pro-poor agenda,” the IMF said, and this is the damage done to the economy and Liberians by a Bank that should be at the center of poverty reduction.
Now needed, is a complete reform of the central bank coupled with a change of the management team to restore lost reputation and confidence. People who created this crisis cannot lead us out of this crisis.