DIMINISING VALUE OF THE LIBERIAN DOLLAR

In recent years, Liberians, especially low-income and no-income earners whose buying power – for the commodities such as of rice, meat, fish, cooking oil, pepper, fire-wood, palm nuts, bitter balls, egg-plant, plantain, rent, housing, clothing, school, etc., etc – had been, continues to be, dangerously reduced (Economists call it depreciation) have been wondering, why this life-threatening, national epidemic (like the Ebola) and why nothing serious and lasting is done about it?

Dr. Togba-Na Tipoteh, one of Liberia’s prominent Economists, offered an explanation of the economic truth and reality (a proven Economic Theory) of supply and demand of commodities freely traded in the market place by the analogy of a woman.

Dr. Tipoteh writes (The Analyst, July 19, 2016) that “Commonsensically, truthfully and . . . scientifically, whenever . . . like many men running after a (fine, or beautiful) woman, the woman becomes hard to get. When few men were running after her, she prefers to eat in a (our Liberian, low cost) cook shop. But now, with a lot of men running after her, she prefers to eat in a restaurant, especially a foreign restaurant having very expensive food”.

What Dr. Tipoteh says is that in the real world of Economic Thought, things are that:

a) When more and more or plenty people (consumers) want (demand) a commodity (like rice, meat of cooking oil, etc.), the cost (or price) of that commodity goes up, up and up. In Dr. Tipoteh’s analogy or example, the woman is the commodity and cost of food from the restaurant and others that one must bear to enjoy the woman’s company are the price.

b) In buying & selling or importing & exporting on the international, free market, any given country needs and must have the money of the country from which the given country wants to buy or import. For example, if Country A wants to buy and import from County B, Country A needs and must buy Country B’s money. To facilitate this process, all sovereign counties have adopted Foreign Exchange Rates, a relative price paid, in this case, in Country A’s money for a unit of Country B’ money.

c) In general, the relative value of a given country’s money is determined by the ability to produce commodities desired more and more by plenty people (consumers) because this desire translates to the rise, up and up, of the price, the Exchange Rate.

Back in June 2001, from the comfort of Cell #1, Political Cell Block of the Monrovia Central Prison, we penned reaction to the printing and circulation of new banknotes and resulting commotion about exchange rates, the parallel exchange rate, value of the Liberian dollar and the nation’s dangerous dependence on and unnecessary, excessive demand for imported goods and services. Some fifteen years later, Liberia is back, apparently, to the same problem.

Reflecting on the thoughts expressed with suggestions, we wrote, from the prison:

d) “It is, indeed, this excessive demand for foreign currency that drives up the foreign exchange rate which, in turn, drives up commodity prices and, thus, causes the general price inflation. This economic spiral bears the major responsibility for the economic hardships that affect all Liberian, salary/wage earners and consumers”.

e) “This general price inflation results are due to the rise of the foreign exchange rate because the more and more a given commodity is demanded by consumers, the higher and higher the price of that commodity rises; the foreign exchange rate, in fact, being the price paid, in Liberian dollars, for a US dollar, British pound, German mark, the CFA, etc., etc. Therefore, the more and more foreign currencies are demanded by Liberian consumers in order to purchase more and more importable goods and services, the higher and higher the prices of these foreign currencies (or foreign exchange rates) rise.”

f) “Thus, we have seen and experienced that from a three-Liberian-dollars to one-US-dollar exchange rate in early 1989, the exchange rate now stands at 64:1 in favor of the US dollar and rising. In other words, the Liberian consumer now pays a great deal more than twenty times for the same quantity and quality of goods and service bought in 1989; this prevailing condition raised the cost of living while, simultaneously, holding income constant at the depreciating or depreciated, Liberian dollar value; thereby, depreciating, also, or drastically reducing consumer buying power, a triple economic tragedy!!!

The mind-boggling escalation of the nation’s foreign exchange rate sent shock waves throughout the economy with a chilling, negative impact on the buying power of the Liberian consumer. The President of Liberia was so moved and concerned that he decreed the rising rate of 64:1 (64 Liberian dollars to one US dollar) be dropped to the low of 50:1. This was done with “immediate effect” in April 2000”.

“It is important to note that there are two major reasons for this state of economic affairs in our country. The first is the historical, emotional attachment to and unreasonable preference of the US greenbacks by Liberia’s elite, a social, economic and political class that constitutes the sole decision-making body in our society. The second is our inability to organize and establish enterprises/organizations for the production and export of goods and services desired and demanded by foreign countries and consumers – USA, UK, France, Germany, etc. “

“Until and unless we produce such goods and services, the Americans, British, French, Germans, etc., will NOT open up the vaults of their central banks and dish out to us, free of charge, millions or billions of US Greenbacks, British Pounds, French Francs or German Marks, historical/emotional attachment and reasonable preference notwithstanding. We will have to earn their currency through trade, commerce and investment”.