By Festus Poquie
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.
Former Auditor General John Morlu in his 2013 Article “The five Factors Causing Inflation in Liberia called the printing of more banknotes as 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.” Festus Poquie