10 April 2014

Liberia: PYJ Submits Single Currency Bill

Amidst the escalating rate of the United States dollars against the Liberian currency, Nimba County Senior Senator Prince Y. Johnson has submitted to the plenary of the Liberian Senate a bill, seeking a single currency in the Liberian market.

The bill, which was read in plenary Tuesday during the senate's regular sitting at the Capitol, posits that the removal of the dual currencies regime will decrease the difficulty monetary authorities continue to face in efforts to stabilize the economy. Senator Johnson, who is seeking re-election, said the enactment of the single currency regime will increase the Liberian Government's ability to gain control over its resources.

"I see the use of dual currencies, the Liberian dollars and United States dollars in the country as 'shared nonsense' which needs urgent consideration," he emphasized, and added, "the use of the Liberian dollars simultaneously to the US dollars is a threat to the country's economy which needs to urgently be addressed."

The paralleled rate between the US and Liberian dollars stands at $1 US dollar to L$86 or above. The Central Bank of Liberia and other economists here have indicated that "market forces are responsible for the soaring gap between the US and Liberian dollars."

But the senator argued further that Liberia has a cash-based economy with two legal tenders - the Liberian dollar and the United States dollar. However, the level of dollarization in Liberia is very high and has increased in recent years.

He emphasized that it can generally be ascribed to the desire of residents who had tried to diversify and protect their assets from the risks of a perceived depreciation of the Liberian dollar and an eventual economic instability as a result of the country's civil war that spanned over a decade.

Johnson pointed out that the motives for the increased dollarization of the economy, particularly during and after the war years, are two-fold: currency substitution and asset substitution.

"For currency substitution, the US dollar is demanded in order to be used essentially as a means of payment and unit of account by residents who perceived high inflation which makes the use of the domestic currency costly," he stressed.

Acknowledging the dollarizing, Sen. Johnson said this has left a destabilizing effect on the Liberian Economy by causing the constant deprecation of the foreign exchange rate. According to him, the Central Bank of Liberia does not have the statutory mandate to issue, print, or dispose of foreign currencies, especially the United States dollars, adding that as a result, the amount of foreign capital entering or exiting the country cannot accurately be managed or accounted for by financial authorities here, placing the country in total financial crisis.

"Thus, the Liberian Banking System is too vulnerable to both fluctuations in foreign exchange and capital flight," Senator Johnson pointed out in his communication attached to the bill.

Trying to convince his colleagues on the importance of the bill, the former political leader of the National Union for Democratic Progress or NUDP indicated that the single currency bill if passed by the Senate and possibly concurred by the House of Representatives, will buttress government's effort in empowering Small-Medium Enterprise business owners who operate exchange bureaux, while taxes levied from all institutions who exchange money will go back to government.

He maintained that embracing the local currency is a unique symbol of nationhood and brings pride to the citizens of the country. Meanwhile, the bill has been sent to the Senate Committee on Banking and Currency for experts' opinion.

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