According to the New Dawn newspaper (The New Dawn, April 10, 2014), “Amidst the escalating rate of the US dollars against the Liberian currency, the Senior Senator of Nimba County, Prince Y. Johnson, has submitted a bill to . . . the Liberian Senate seeking a single currency in the Liberian market”.
“Single Currency Bill submitted”-New Dawn: Some Thoughts
According to the Senior Senator, “The Bill posits that the removal of the dual currency regime (circulation of the US dollar as legal tender in tandem with the Liberian dollar) will decrease the difficulty that (Liberia’s) monetary authorities face . . . in the effort to stabilize the (Liberian) economy” and that “the enactment of the single currency regime will increase the Liberian Government’s ability to gain control over its resources . . . the use of the Liberian dollars simultaneously to (with) the US dollars is a threat to the country’s (Liberia’s) economy which needs to be addressed urgently” . . . although “the CBL (Central Bank of Liberia) indicated that marked forces (supply and demand) are responsible for the soaring gap between the US and Liberian dollars”.
The Nimba County Senator argued, further, that “Liberia has a cash-based economy with two legal tenders – the Liberian dollar and the US dollar; however, the level of (US) dollarization in Liberia is very high and has increased in recent years”.
In other words, the proposed legislation, if enacted, will:
a) Establish single, Liberian currency regime in Liberia and abolish the dual currency regime (the prevailing semi-official Currency Substitution) of the US dollar as a legal tender in circulation, in tandem with the Liberian dollar.
b) “Decrease the difficulty that (Liberian) monetary authorities face to stabilize the economy” or gain monetary autonomy with authority over exchange rate instruments, thereby “Increase Liberian Government’s ability to gain control over its resources and eliminate threat to the country’s economy”.
Indeed, these are noble, nationalistic, patriotic and, above all, reasonable, economic goals. However, achievement of these desirable goals requires prior formulation/implementation of relevant, economic policy, basic pre-conditions, as we shall see later.
Depreciation of the Liberian Dollar
The Concerns of the Liberia people – producers, consumers, the Monetary Authorities, Economic Planners, the National Legislature, concerns which, in fact, gave rise to the proposed Bill – are due to and because of the perennial, ever-present depreciation or decrease in value of the Liberian dollar, with the resultant price inflation. Rightly, the CBL argues that this condition is the outcome of the interaction of the market forces of demand and supply of goods and services in the marketplaces of local, national, international, economic activities – trade and commerce. This argument is based on Economic Thesis which holds, proved by practical, economic reality, that the more, and more a commodity is demanded by consumers, the higher and higher the price of that commodity rises.
Meanwhile, in international trade and commerce, countries, business organizations and individuals, as consumers, need and must have the money/currency of other countries in order to purchase and import desired/demanded goods and services from these, other countries. That is that consumers must, first, purchase the money/currency of these other countries from banks or foreign exchange traders at a rate known as the Foreign exchange rate, a money/currency exchange rate regime established and maintained by, almost, all trading countries. At this point, the foreign exchange rate of the exporting countries (USA, in our case, for example) has become and is, now, a commodity demanded more and more by consumers – Liberia, in this case – to purchase and import more and more of US goods and services; therefore, the price of the US foreign exchange rate rises or has risen, in terms of or relative to the Liberian dollar, and that Liberia must, now, come up with more Liberia dollars per US dollar. Thus, a depreciation or decrease in value of the Liberian dollar and the buying power of the individual, Liberian consumer.
Value of Money/Currency
It is important, also meanwhile, to note that although money/currency possesses no intrinsic (in and of itself) value in useful, human terms, but its worldwide acceptance as the medium of exchange for goods and services desired/demanded in the marketplace of economic activities, gave and renders it socio-cultural, economic, political and psychological value or that which has come to be known as “Storehouse of Value or Convertible Currency”. But the Liberian currency, the Liberian dollar, does not possess or is without the recognition of international, Storehouse of value or Convertible Currency status, although declared a national currency, tied or “pegged” to the court tails of the US dollar, and circulates as legal tender with the Liberia dollar (a semi-official currency substitution, in the effort, apparently, to ease the peculiar conditions of developing countries’ inflations).
The major path to this Storehouse of Value or Convertible Currency lies, among others, in the production of goods and services desired and demanded by our trading partners and the general public – of the local, national and international marketplaces. In other words, storehouse of value or convertibility depends on Liberian production of goods and services desired and demanded which, in fact, is or translates to demand for the Liberian currency by others and, thereby, renders it the status of Storehouse of value or Convertible Currency.
However, as indicated earlier, there are pre-conditions.
The satisfaction of these pre-conditions requires two, basic approaches – production for local consumption and for export.
A. Production for Local Consumption
1. Organized, local production discourages, reduces and, eventually, eliminates Liberia’s dependence on imports. Local production of food – rice (our staple), cooking oil, sugar; orange, pineapple, tomato juices, etc; coffee, cocoa, mineral water, poultry products, cumber, leaf lettuce, plantain, banana, fish & fish-farming, cassava, yams, pawpaw, plums, etc., etc.
2. Other products for local consumption include Liberian clothes, furniture (made here by Liberians with Liberian wood), trained/experienced talent – vocational, academic/intellectual – scientific, technological, IT, for example.
B. Organized Production for Export
1. For export – all tropical products – plantain, banana, rice, palm oil, Pineapples; pineapple, orange, tomato juices, etc.; coffee, cocoa, cassava, yams, cucumber, timber, rubber, furniture, including iron ore, oil, gold, diamond, etc., etc. Why not manufacture tires from our rubber and steel products from iron ore that we produce?
The realization of points A and B above depend upon the necessary, enabling, infrastructure – all-weather roads/highways – for organization/establishment of organizations/enterprises for productions of Liberian goods and services. This requires priority, public policy diligently developed and implemented.
These are examples of Liberian, organized production for local consumption and the export trade, necessary to discourage, reduce and, eventually, eliminate our dependence on imports.
In the absence of these examples – organized production for local consumption and the export trade – Liberia’s foreign exchange rate will continue to depreciate, the nation’s Terms of Trade will continue to deteriorate due Liberia’s increasing demand for imports, according to CBL Executive Governor, “since the beginning of 2013 the exchange rate has come under pressure with a depreciation of more than 8% due largely to 17% deterioration in Liberia’s Terms of Trade and increased demand on (or for) imports” (New Democrat, December 9, 2013).