The Dual Currency Trap: How can Liberia Escape the Burden of the US Dollars and Improve its Ailing Economy
By: Joseph Jimmy Sankaituah
Contributing Writer
The Perspective
Atlanta, Georgia
May 26, 2019
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Liberian Currency |
It has been sixteen years since the Liberian civil crisis came to an end in 2003. The motivations of the civil war itself were unproductive and created unbearable conditions that still impact negatively on the well-being of Liberians. One such impact is the poor state of the economy. Until 1989, the economy was relatively stable and living conditions of Liberians were good in comparison to some of its West African neighbors. During the period before the civil war, the political elites underestimated the benefits of a functioning economy that attracted nationals from neighboring countries to take advantage of the enduring Liberian economy. The fights in those years were not about the economy and the wellbeing of Liberians, rather it was about access to political power and authority. This attitude continues to unveil itself even today. The political elites struggled for political emancipation and ignored economic emancipation which was and is still the felt needs of Liberians. It is a reality that when citizens have jobs and are capable of addressing the bread and butter issues, then politicians will live and work in peace. If not, they get the opposite. This has been the state of affairs in Liberia for many years and has further manifested itself under President George M. Weah’s Administration.
Liberia is in a serious state of near collapse due to the poor state of the economy driven by the exchange rate as attributed by some Liberians, as well as the dual currency (United States Dollars and Liberian Dollars) used concurrently in the Liberian economy. While I am not an economist, I do believe that the dual currency has provided cushion to the ailing economy. However, in my view, what has been missing is Leadership. Strategic leadership has been a fundamental gap in the post-war governance of the country.
The government of Liberia needs to provide the right leadership in the management of the dual currency economy. The government has got to take actions to reduce the demand for the United States Dollars on the local market. It does not make sense for the Liberian Government to collect taxes in United States Dollars. By asking taxpayers to go out on the local market and find United States Dollars to pay lawful taxes in a country that does not produce United States Dollars is a factor for creating unnecessary demand for the US dollar. The government needs to also ensure that those who want to import goods and services into Liberia do not go through the burden of trying to buy United States Dollars on the local market, as this also creates an unnecessary demand for the United States Dollars. There is also no need for goods and services to be sold in United States Dollars on the local Market. Schools and clinics should not be allowed to sell their goods and services in the US dollars. Banks and financial service institutions should not be allowed to give United States Dollars to any of their customers unless that customer can prove that they are traveling outside of the country (flight ticket, hotel bookings, etc) for which they have a need for United States Dollars. The government, multinational companies and private businesses operating in Liberia should not pay their employees and or contractors in United States Dollars; not even their expatriate staff unless they are traveling outside the Country. International Governmental Organizations and Foreign Missions should be exempted from this measure due to diplomatic immunity.
In my high school economics, I was taught the law of supply and demand - the higher the demand, the higher the price and the lower the demand, the lower the price - and this is exactly what this article argues; that successive Liberian governments (past and present) have continued to create unnecessary demand for the United States Dollars without the correspondent capacity to supply the currency in the local market. The US dollar is produced and controlled by the Federal Reserve of the United States of America and not the Central Bank of Liberia. Why tag the country’s economic activities to the currency we have no control over?
If the government take measures to stop too many people chasing a few United States Dollars on the local market, the demand for the United States Dollars might be reduced. However, some might argue that the government will not be able to service its debts - local and international - since the country’s export sector is still very weak. I maintain in this article that such a supposition is a weak argument. Let me pose a couple of questions to the proponents of such an argument. Where are the US dollars that are currently used to pay government taxes coming from, and how is it being generated? The lack of leadership on the part of our governments (past and present) that I mentioned earlier has got to do with the desire for officials of government to keep United States Dollars in their pockets to buy personal goods and services and not necessarily the need to service the country’s debts. This must stop. Officials of government need to delay their gratification to allow the Country to survive amidst the declining economic situation in the country.
The current Liberian Government needs to move very fast and reduce the demand for the United States Dollars by taking certain steps which should include, but not limited to:
- All taxes must be paid in Liberian Dollars except multinational companies operating in Liberia with subsidiaries abroad or listed on any of the stock markets
- The Government must pay all goods and services in Liberian dollars including salary and benefits for all category of employees in all branches of the Liberia government including the President, Vice President, Speaker, Chief Justice, etc. The only payment to be made in United States Dollars are those to be spent outside of the Country. For any official of government to get payment in United States Dollars, he or she must provide proof that they will spend that money outside of Liberia.
- The government must transition its budget from United States Dollars to Liberian Dollars and subsequently ensure that all service providers supporting the initiatives of Government do likewise and transact in Liberian Dollars. It doesn’t matter who is involved. This is where equity, fairness, and justice must be enforced.
- The Government must ensure that all supermarkets and businesses label their goods and services in Liberian Dollars and businesses pay hefty fines if caught accepting United States Dollars for their goods and services
- That multinational companies exchange their United States Dollars brought into the country for Liberian Dollars through the Central Bank. In fact, the commercial banks with whom they transact businesses should hold the United States Dollars and give them Liberian Dollars to pay salaries of their staffs. However, expat staff may be exempted only in case if they need money to use abroad and can prove that they need such an amount.
These actions are as necessary as the systems and processes the government would put in place to ensure that those who need United States Dollars through the formal banking system can access it within 24 hours or less. The government should brace itself to mobilize all the United States Dollars that comes into the Country under its authority and regulate how is it used within its borders.
Besides what happens within the local markets, there are big international currency exchange brokers sitting in Washington DC, London, Brussels, etc who are buying and selling local currencies that influence the exchange rates. These brokers are dealing directly with the commercial banks and financial service institutions providing them better exchange rates as against what the central bank is providing. They have argued in most countries where they operate that they are contributing to the stability of the exchange rate. I do not buy their argument. Instead, they are contributing to manipulating the rate for two reasons:
- They are not a registered business within the country and are not legal taxpayers, but yet maximize profit through the exchange of currencies by offering better rates than the official rate.
- Their action to participate in the currency exchange market while sitting outside of the country has the potential to manipulate the exchange rate at their advantage and putting local exchange businesses at the disadvantage even though (local exchange businesses) are legal taxpayers
The Government needs to watch out for commercial banks doing business with these international foreign exchange businesses operating inside the Country without being a legal entity under the laws of Liberia. These potential currency manipulators do not see anything wrong with their operations and therefore will go all out to defend their actions including persuading ill-prepared officials to stand on their side. They exist in other parts of West Africa, but I have no proved if they are operating in Liberia. The government needs to find its footprint on the currency shores of Liberia and put in place the necessary regulatory framework.
Finally, there is nothing wrong with the dual currency in Liberia. It has existed since the 1980s when the Military Government introduced the coins (LRD5.00) to regulate the movement of United States Bank Notes (capital flight) from the country and forced people to invest. The dual currency has helped cushion the dual currency market. The problem we now face is the unpatriotic actions of our governments which has increased the demand for the United States Dollars over the Liberia dollars. There is a need to ensure that the Liberian Dollars regain its glory as of the legal tender and regulate transactions in the United States Dollars on the local market so that the value of the Liberian dollar will appreciate by decreasing the demand for the United States Dollar.
About the Author: Joseph Jimmy Sankaituah holds MSc degree in Diplomacy and International Relations from Fourah Bay College - the University of Sierra Leone, BA in Political Science from the University of Liberia. He has over ten years of experience working in Liberia and Sierra Leone in the civil society sector. He worked as one of three national consultants who reviewed and revised the National Youth Policy of Liberia in 2012. Between 2008 and 2010, he served as President of the Federation of Liberia. Between 2005 and 2007, he served as National Youth Coordinator of the Young Men’s Christian Association of Liberia. He currently lives and works in Sierra Leone. Email: jjsankaituah@gmail.com