-- CBL Deputy Governor Dr. Dukuly reveals
Of late, the Liberian banking sector has been a scene of crisis. Be it the shortage of US dollars on the market or the issue of more Liberian dollars outside the banking system than within -- the sector has never been short of problem.
This time, it is the excess availability of Liberian dollars in the public space than in the banks. According to Dr. Musa Dukuly, the Deputy Governor for Economic Policy at the Central Bank of Liberia (CBL), the country has about "L$20 billion outside of the banking sector representing 97%" of the total amount of Liberian dollars in the country.
"What that means is that Liberia's financial sector stability is under threat," he says.
Currently, the country's financial inclusion stands at 35.7%, and that constitutes a population that is holding bank accounts connected to mobile money wallets.
The current situation, Dr. Dukuly says, is compounded by the fact that a significant proportion of the country is outside of the banking sector, including four counties without a bank -- a current macroeconomic challenge the country is experiencing, which is far from ending.
"We should understand that our macroeconomics is experiencing a major challenge, and one of the critical challenges has to do with the currency that is outside of the Liberian banking sector. One way we can ensure that we have a financial sector that is ready to be stable is to push for a digital economy," said Dr. Dukuly.
The CBL Deputy Governor made these remarks at the official launch of TipMe Liberia, a digital payments platform founded by Liberians and which has accomplished the feat of allowing Liberian merchants to receive online credit card payments in Liberia from anywhere in the world.
This issue of excess liquidity outside of the banking sector is not new. According to the CBL's 2019 annual report, headline inflation that year was spiked beyond the ECOWAS regional benchmark of 10.0 percent, reaching an annual average of 27.3 percent, despite several actions and policies the CBL pursued to contain the spiraling inflation.
In that report, the CBL admitted that the inflation dynamics were due to the outgrowth in the money supply, as evidenced by over 90.0 percent of currency outside the banking system.
"The thrust of monetary policy was to contain inflation and improve financial sector stability. In this context, the CBL raised its policy rate from 4.0 percent to 30.0 percent, above the projected annual average rate of inflation for the year, to aggressively reduce currency outside the banking system and contain the inflationary pressure," the CBL report said.
However, this might not be the case as the money outside of the banking sector has even increased from 90% to 97% in less than a year.
Such revelation from Dr. Dukuly may not come as a surprise as the Kroll report on the alleged missing L$16 billion and the US$25 million "mop-up" exercise, which took place between July and October 2018, uncovered a number of discrepancies which, Kroll noted, opened up opportunities for money laundering and other financial crimes.
The "mop-up" exercise, according to the government was intended to reduce the amount of local currency in the economy to slow further depreciation, but the Kroll report paints a different picture.
Kroll, in its report, recorded that out of the newly printed L$15 billion, "more than L$10 billion was fed into the Liberian economy without withdrawing any older notes. And that, for the mop-up exercise, US$5 million was also pumped into the economy without any withdrawal of local currency."
The Kroll report also revealed that old Liberian dollars were reintroduced into the economy within six months of being removed from circulation.
On the same mop-up exercise, the General Auditing Commission in a report on the matter unveiled many discrepancies between what the Central Bank reported and what was established by the investigation.
Of the US$25 million, US$15 million was used for the direct mop-up, and US$2 million was auctioned to Total, the petroleum retailer. The rest of the US$25 million was never used in the mop-up exercise.
The report noted that for the vast majority of transactions conducted, no receipts were issued, even though that has been the past procedure. Only Total, West Africa Fisheries, and Nexium Petroleum were issued receipts, accounting for a total of US$2.5 million of the US$17 million disbursed.
Additionally, the report said 89 beneficiaries, accounting for US$5,670,880, could not confirm the amounts transacted with the Central Bank.
Running to Digitization for Rescue
As more Liberian dollars are expected to be out of the banking sector, the CBL has now placed its hope in digital money platforms to rescue the situation.
For Dr. Dukuly and the management of CBL, digital banking, is their best bet to reshaping the Liberian financial sector in a different context and ensuring that "we improve our growth, particularly economic growth."
The CBL is betting on digital banking because it is experiencing a constant high enrollment rate, which currently stands at 18.8% as of last year.
"Last year December, the country's financial strategies were approved, and to move that statistic in terms of financial inclusion from 36% to 50% between now to 2023, one way to achieve that is leveraging on the opportunity that digital banking brings," he said.
At the same time, Dr. Dukuly has said that the CBL is experiencing a significant challenge with the dual currency issue, especially with the implementation of the bank policy, "because we issue one currency, and we do not issue the other one. So, that alone is slowing the progress of the bank and, if we want to see the country moving to sustainable growth, I think we have to give value to our Liberian dollars.
"The foreign currency is difficult for the CBL to manage because we cannot issue it. The more we use the foreign currency, the more it is to the disadvantage of our economy."
Dr. Dukuly further assured Liberians that the CBL regulatory policies would be in the interest of promoting the digital economy as well as its financial digitalization that remains a flagship project of the bank.