The Central Bank of Liberia (CBL) has spoken on the recent passage by the Legislature an Act to make the Liberian Dollar the only legal tender for business transactions.
A statement issued Thursday, CBL says it views the process of forced de-dollarization without due consideration of the fundamental pre-conditions as being in the wrong direction.
"The sponsors of this bill obviously had good intentions; however, the approach is wrong and will not produce the desired results. The nature and the structure of the current monetary arrangement for Liberia, the dual currency regime, is complex; therefore, a decision that intends to alter such a regime should not be driven by mere public perceptions, or should not be propelled by political persuasion, rather it should be anchored on empirical findings and the structural dynamics of the economy," CBL stressed.
According to the Central Bank of Liberia, the Liberian economy is highly import driven with very low level of manufacturing and as such it is important to note that having the Liberian dollar as the sole legal tender does not obviate the necessity of taking key economic actions in order to support the Liberian dollar.
"Many of our neighbors in the sub-region have adopted single currency regimes, yet their currencies are under immense exchange rate pressure with high inflation as compared to Liberia. The productivity of the real sector, value chain production made possible by the availability of adequate infrastructure and reliable energy supplies, institutional reforms, collective adherence to the rule of law, adequate human resource capacity are the main requirements for a country to achieve a middle-income country status, but not merely a country's currency regime as has been construed and forcefully expressed in some quarters," CBL explained.
The Bank said in an effort to de-dollarize, it drafted a De-dollarization Roadmap in 2012, which is pending Board approval, to guide its steps in meeting the fundamental pre-conditions necessary for successful de-dollarization.
The four-year de-dollarization roadmap, according to CBL, follows a gradual, market-driven approach with well-defined roles and responsibilities of both the monetary and the fiscal authorities.
"Since the development of the roadmap, the CBL has taken a number of steps in its quest to transition the economy to a single currency regime for effective implementation of monetary policy.
The Bank began the issuance of market instruments including treasury bills, treasury bonds, and CBL bills to absorb excess liquidity while raising returns on Liberian dollars assets. The Bank has also established a Liquidity Working Group to proffer recommendations to policy makers, aimed at managing liquidity and has also established a Financial Markets Department as the vehicle for deepening the financial sector," CBL noted.
CBL warned that the forced de-dollarization without due consideration of the fundamental pre-conditions could lead to macroeconomic imbalances characterized by huge capital flight, low remittance inflows, and less financial intermediation.