To curb this danger, President Sirleaf is asking the Senate’s permission for the Central Bank of Liberia to print an unspecified amount of Liberian dollar banknotes to stave off a possible threat of galloping inflation.
The President’s communication to the Liberian Senate last Thursday stated: “While the decision needs to be made now to address this issue that impacts the economy, it is important to note that the printing of notes will require a period of some five months. The underlying reason for the delay that has led to the crisis has to do with the interpretation of Article 34 (d) of the constitution and the Act to Authorize the Establishment of Central Bank of Liberia as amended.”
Without stating what the real danger is, the Liberian leader’s communication, according to pundits, leaves more lingering questions than answers.
According to President Sirleaf, she was advised by former Governor of the Central Bank of Liberia (CBL), Dr. Joseph Mills Jones, and the current acting Governor, that the economy may be affected if a reprint of the local banks notes is not done.
“I believe that the legislature has registered a contrary view,” President Sirleaf opined, adding, “These issues of interpretations should be resolved at an appropriate time, preferably sooner than later.”
But immediately upon his arrival in the country, Senate Pro-Tempore Armah Jallah says he will not support any decision of the Liberian Senate to endorse President Johnson-Sirleaf’s request in the absence of an independent audit the Central Bank of Liberia and its Liberian Dollar account to ascertain what led to the shortage of the Liberian Dollars in the economy.
He told the Capitol Times that even though the urgency attached to the request sounds appealing, he will not be part any hasty decision.
Source close to the government’s financial authority inform Capitol Times that the request to print new banknotes should be justified in the context of how much would be printed and the purpose for which it would be done.
Our source expressed the belief that President Johnson-Sirleaf’s request is primarily to replace mutilated banknotes that have increased at the Central Bank of Liberia (CBL) because “no decision has been reached yet to finance government’s deficit.”
“If my guess is right that the President’s request is intended to replace damaged banknotes, we need to know how much we have in stock that needs to be changed. And, we also must ask whether we are going to print exactly the amount in stock or more than that,” our source intimated.
The Capitol Times inside source has warned that any decision to increase money supply in the economy will negatively impact the exchange rate.
Besides, economic analysts have opined that President Johnson-Sirleaf comes clear with the danger at hand in order to hasten the feet of the National Legislature to act in accordance with Article 34(d) of the Liberian Constitution which gives the first branch of government the right to authorize the printing of currency.
“Why is the President making the request now? Is she doing so to finance government’s deficit or is the Central Bank of Liberia requesting the reprint to replace mutilated banknotes that are stockpiled at the CBL? We need to know before any decision is considered,” one analyst who spoke to this paper on condition of anonymity wondered.
The analyst pointed out that if President Johnson-Sirleaf’s reason would be to finance government’s deficit, then she needs to state what the amount in question is.
According to the analyst, the decision to print new banknotes, howbeit to avert “danger”, has upside risks including putting more pressure on the Liberian dollar that is now trading the US Dollars L$90/US$1.
For instance, the Central Bank of Liberia, in its third quarter Economic Bulletin 2015, states that the buildup of the pressure on the country’s currency began primarily with increased GoL’s Liberian dollar expenditure in the last two months of the previous quarter.
In May, the CBL’s bulletin said GoL LD expenditure increased by 92.3 percent to L$2.5 billion over the preceding month and by 56.0 percent to L$3.9 billion in June compared with May. Though, the exchange rate on average was expected to stabilize around L$87.00/US$1.00 in the fourth quarter of 2015 given historical trend and the current reversal in GoL Liberian dollar expenditure that did not happen as reflected by the present exchange rate on the market.
President Johnson-Sirleaf’s request comes at a time when the CBL has indicated that at end-September, 2015, Liberian dollar in circulation grew by 4.3 percent to L$9,324.2 million, from L$8,941.9 million recorded at end-June, 2015. The growth in currency in circulation was occasioned by the 7.3 percent increase in currency outside banks. When compared with the corresponding period a year ago, Liberian dollar in circulation expanded by 7.9 percent.
“Fiscal operations during the third quarter 2015, reflected a budget deficit of L$311.8 million (0.7 % of GDP), compared with deficit of L$247.9 million (0.6 % of GDP) and surplus of L$678.2 million (1.6 % of GDP) recorded in the previous and corresponding quarters, respectively. The deficit recorded during the review quarter was attributed to 8.7 percent growth in total Government expenditure that outweighed an 8.3 percent rise in total revenue and grants over the preceding period,” the CBL Bulletin noted.
Historically, Liberia’s currency debacle dates as far back as 1847 when the country used US Dollars and British Pound at different times.
The dollar (currency code LRD) has been the currency of Liberia since 1943. It was also the country's currency between 1847 and 1907. It is normally abbreviated with the dollar sign $, or alternatively L$ or LD$ to distinguish it from other dollar-denominated currencies. It is divided into 100 cents. The first Liberian dollar was issued in 1847. It was pegged to the US dollar at par and circulated alongside the US dollar until 1907, when Liberia adopted the British West African pound, which was pegged to sterling.
In 1847, copper 1 and 2 cents coins were issued and were the only Liberian coins until 1896, when a full coinage consisting of 1, 2, 10, 25 and 50 cents coins were introduced. The last issues were made in 1906. United States currency replaced the British West African pound in Liberia in 1935. Starting in 1937, Liberia issued its own coins which circulated alongside US currency.
The flight of suitcase-loads of USD paper in the economic collapse following the April 12, 1980 coup d'état created a currency shortage, which was only exacerbated when the government began minting $5 coins. Unfortunately the 7-sided coins were the same size and weight as the one-dollar coin; this similarity was frequently abused by traders.
In the late 1980s the coins were largely replaced with a newly designed $5 note modeled on the US greenback ("J. J. Roberts" notes). The design was modified during the 1990-2004 civil war to ostracize notes looted from the Central Bank of Liberia. This effectively created two currency zones -- the new "Liberty" notes were legal tender in government-held areas (primarily Monrovia), while the old notes were legal tender in non-government areas. Each was of course illegal in the other territory. Following the election of the Charles Taylor government in 1997 a new series of banknotes dated 1999 was introduced on March 29, 2000.