14 June 2012

Liberia: Governor Jones Fears Rising Liquidity Problem

The governor of the Central Bank of LIBERIA (CBL), Joseph Mills Jones, says the presence of structural and persistent excess liquidity has made liquidity management difficult in most counties of the sub-region.

Incidentally, excess liquidity, in banking terms, is the excess quantity of reserves kept with the central bank, which include vault cash, over the required level.

The CBL boss said excess liquidity might also arise due to the presence of asymmetric information, fiscal dominance, limited competition in the financial sector, and the underdeveloped nature of money markets.

He made the remarks recently when he addressed the opening ceremony of a weeklong workshop the organized by the West African Institute for Financial and Economic Management (WAIFEM/ACBF).

Governor Jones further noted that where the banking infrastructure is inadequate, commercial banks may hold excess liquidity because they are unable to track their position at central bank on real time because of undeveloped payment systems.

Moreover, he said, it is argued that the existence of excess liquidity could be because of the non-existence or development of a liquid and competitive bond market.

“When there is excess liquidity in the economy, the transmission mechanism of monetary policy, which runs from a tightening of liquidity conditions to changes in interest rates and then to economic activity, is altered and possibly interrupted completely,” Governor Jones further noted.

Earlier during the opening session of the workshop, WAIFEM’s Director General, Prof. Akpan H. Ekpo said the aim of the course was to upgrade the knowledge and analytical skills of participants in the various areas of liquidity management, forecasting, monetary policy, central bank liquidity, fiscal policy, and central banks liquidity management, fiscal and monetary policy coordination, among others.

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