By James Thomas-Queh
In the midst of uncertain general elections an important law has been passed by the House of Representatives to make “Liberia a single currency country.” Astonishingly, hardly anybody or even the Presidential candidates said anything on the timing or the possible impact of such a crucial law on the economy and lives of the Liberian people. Yes, I am no economist, but I think there are some very pertinent questions to be aware – if the next government is to avoid a harder economic landing.
The Pertinent Questions I See
- Why a government that has transacted in dual currency – paying its officials so exorbitantly in hard US$ currency for the past 12 years – now wants to impose on the next government that “all transactions, including all purchases, sales and other related business deals in the country be done in Liberian dollars”?
- The law further states: “Liberian currency for all Accounting, Financial Reporting and official purposes in Liberia and the currency of the United States of American shall be legal tender in Liberia for the sole discharge of foreign public and private obligations (author’s note). Question: Does this mean that Liberians will continue to have dual bank accounts (L$ and US$) or only those in business? If not, will all the private bank accounts in US$ be changed automatically into L$?
- What is the economic rationale for having two currencies as legal tender, but one is strictly considered a “single currency” (L$) for use by the general public, and the other (US$) for the sole discharge of foreign public and private obligations?
- Will the current high salaries in US$ be transferred into L$ or will there be a new standardized salary structure in accordance with the living standard and economic decline that may have prompted the introduction of a single currency?
- Will our remittances now be received systematically in L$?
- The market women have consistently complained on the high exchange rate between the L$ and US$ – how will the single currency help the situation, and not the contrary?
- Could the single currency affect the enormous cross-boarder trading that brings most of the essential goods into the country?
- My layman’s knowledge is that the value of a currency depends on the gold reserve of the National Bank; the country’s capacity to produce, manufacture, export, etc and create national wealth, plus the patriotism of the people to preciously protect and guard this wealth, and not to steal anything perceived as belonging to the state. So, did we fully examine or put into place the necessary mechanisms before introducing the single currency?
- Isn’t there a high risk that our economy is near a bankruptcy, and the next government may be tempted to print billions of L$ (as the current government has already done) to pay employees and function artificially with a worthless currency; thus creates hyper inflation, scares away investors, diminishes the importation of essential commodities and bring more hardships on a population already at rock bottom?
- According to this law, the Liberian currency comprises banknotes and coins. The banknotes are in the denomination of $5.00, $10.00, $20.00, $50.00 and $100.00 while the coins are in $0.05, $0.10, $0.25, $0.50 and $1.00. Question: What has happened to the $500.00 bill printed recently with the billions of L$?
- How does the single current impact our debt reimbursement since in theory we have to buy the US$ in order to pay our creditors?
- And finally, what economic indicators determine the exchange rate between the L$ and US$?
Well, now my hope is on our financial experts for some answers.
The little I know about dual and single currencies
For time in memorial the L$ and US$ have been coexisting as legal tender in our country, but the official exchange rate then was 1 to 1. During those days when you got your small government pay check, you could take out $20.00 from it and purchase your bag of rice for the same $20.00. There were no hard or soft currency; no dual salaries ; no dual bank accounts and dual prices of commodities from the time of Tubman through to Moses Blah. It is the financial management prowess of the current regime that has turned everything up side down and confused our heads for all the reasons we already know.
Now, I see two major differences today from the past that have helped to burden our economy. First, there is the exchange rate which now fluctuates between L$120.00 and L$130.00 to US$1.00 (depending on one’s location in the country). This is the factor which has been the mean concern of the market women; and I think the “single currency” is not the appropriate answer as we are being made to believe once again. It could be worse if some radical accompanying economic measures are not taken rapidly.
The second difference has been the astronomical salaries of officials and the unproductive, huge government expenditures in the midst of the high exchange rate between the L$ and US$. Well, with the “single currency” it would mean that a Senator who takes home more than US$15,000.00 per month should see this amount grow to more than L$1.8 million depending on the exchange rate of L$120.00. The same holds for the Representatives, Executive, Justices and all the others. At such a jump, if we were to reach the equivalent of our national budget that is around US$600 million, the Central Bank would have to probably print more than L$70 billion per year.
It could even be worse since we have heard that the last L$15 billion or so printed and put on the market, the Central Bank cannot find their trace (and we are not yet transacting with a single currency). If that is true, we should expect another indiscipline and irresponsible leadership to be printing billions of L$ every month –and not per year – to meet the payroll until the country becomes inundated with a worthless currency. Then were I a bank manager I would cash those big salary pay checks of our Senators, Representatives and others, and give all to them in coins to take home and stock in their mansions’ ceilings, under their mattresses and in their shoes to reduce them to ridicule as shameless simpletons.
Do not get read me wrongly, though – I am the staunchest supporter of a single national currency – when properly conceived and executed in our genuine national interest – and not for the sole purpose of absconding to hide some ill-gotten wealth and gross mismanagement of our national resources.
Frankly, what I saw and experienced when the European Union introduced a single currency served as a lesson. These people took years to prepare and educate their people; students in the classrooms; work places, etc on the enormous advantages of the measure. The democratic debates among the pros and cons or on the possible psychological impact were passionate and enlightened, indeed.
Take this example – each EU country’s currency was first given a value vis-à-vis the new single currency (euro); and at the same time the euro was valued higher than the US$. In France, the French franc was valued at around 6Fr to 1euro. So, when the euro was finally introduced, if one had a bank account of 6000Fr its equivalent was now 1000 euros; salaries, debts, prices, services, etc all went the same way. Well, the psychological impact was immediate; some people ignored their bank accounts or salaries and went on a spending spree because a shirt previously sold at 60Fr was now only 10 euros, and so on. Not too long also the vendors, service providers, etc began adding 2, 3 or 4 euros to their prices; then soon the inflation took hold. But then the euro had already become a much sought after hard currency; capital flight towards the euro zone accelerated, and thus the economy withstood the challenges.
The same cannot be said of Liberia. The situation could be critical and even become a destabilizing factor. Because as a country devastated by the civil war, we started off – not with our weak currency, transparency and humility – but instead with a hard currency, high salaries and extravagant lifestyle, financial opacity and corruption. Worse, in our delusions of grandeur we quickly sold out all our natural resources with dubious concession agreements. And now that the economy has backfired and totally out of control, we want to transfer the blame to our weaker currency – but with the same indecent, absurd advantages. In my view, that is a suicidal mission. With the L$ in depreciation daily, soon the prices will skyrocket; there could be an acute scarcity of basic commodities; to purchase a bag of rice, cement, steel rod, etc may require a truck full with L$ (since Liberian traders do not accept checks nor credit cards), and only the same very privileged few could readily obtain the US$ (and not the market women, traders or importers) to continue their hang-outs in the United States and elsewhere.
Oh, does anyone remember Sierra Leone of the 1990s, where we used to show-off with our refugee US$ before a sisterly people who opened their doors and hearts to us? When a US$100.00 was changed, one got a bag full of their Leone currency; and we thought this was the poorest and most underdeveloped country on earth. Unfortunately, we took them down with us, but they got up humbly, no honours, no Nobel laureates, only with their valueless Leone and not brandishing the British pound. And despite all the natural disasters befallen upon them, they are now doing extremely better – paying their officials according to their modest economic means, no false grandeur, and even investing in Liberia – imagine.
My fellow Liberians, what yet a lesson to learn from these brethren of high intelligence, farsightedness and discipline who even served the model and launch pad from which our illustrious pioneering forefathers established “The Sweet Land of Liberty”.