THERE IS NO financial and or economic theory supporting decision to print new banknotes to replace unknown ‘damaged’ banknotes that will increase the supply of money on a market when the existing currency is already depreciating at fast speed in value.
Bracing for Hyperinflation-Not stating the quantity of damaged Banknotes, something Sinister in Central Bank’s ‘New Banknotes’ Printing
New color, denomination, different features, the Central Bank of Liberia is clearly increasing the money supply on the Liberian market with Liberian dollar already depreciating in value
THERE IS YET NO known justification why the Central Bank of Liberia-the Bank of Government-feels it is wise to increase the money supply in the economy by printing new banknotes when the Liberian dollar is already becoming worthless, surplus in circulation and almost unwanted by consumers.
IT IS NO DOUBT THAT the country is experiencing inflation –as there is increase in prices and fall in the purchasing value of the Liberian dollar. What a $100 Liberian dollar was able to buy in June, even $120 Liberian dollars cannot buy that right now in July.
PRICES OF COMMODITIES such as rubber, iron ore are still low on the world market and it is predicted that the country is not expecting more United States dollars through the operations of concessionaires anytime soon; therefore printing more Liberian dollars simply means increasing one set of currency with no hope of getting more of the corresponding trading currency.
ON TOP OF THESE GLARING economic and financial realities, the Central Bank of Liberia Wednesday announced that it will soon infuse on the Liberian market new banknotes with the addition of a new denomination of $500.
IN A STATEMENT ISSUED Wednesday, the Bank announced that in keeping with its statutory mandate to at all times ensure that the integrity of the Liberian Dollar is uncompromisingly maintained, it will shortly introduce a new series of banknotes into the Liberian economy.
THE CBL STATEMENT indicated “This new series includes, among others, the unifying nature of the existing Liberian Banknotes, and as such, has maintained all previous portraits. The CBL has also reinforced the security features in the new series, which are both visible and invisible. In addition, the Bank has ensured that the new series is printed on a higher quality substrate to guarantee longevity and reduce porosity. The new series also introduces a new denomination of L$500 (Five Hundred Dollars), in addition to the present denominations”.
THE CBL RECENTLY REQUESTED legislative endorsement to print new banknotes and in its request the bank claimed it wants to replace mutilated banknotes on the market.
A REQUEST FOR REPLACEMENT of mutilated or spoiled banknotes was a genuine one since the current Liberian dollar banknotes have been in circulation since it was issued March 29, 2000 and during these years, there has been spoilage but something sinister is now afoot when the bank has taken unto itself to change the color and also add a new denomination without stating the exact amount of banknotes that have spoiled and need replacement.
A SIMPLE PROCESS OF REQUESTING through public announcement for people with mutilated banknotes to turnout at the Central Bank or designated locations to have their banknotes turned over and registered for replacement could help the CBL know the quantity of mutilated banknotes that should be replaced.
THIS WAS NOT DONE, SO HOW IS the CBL going to know the quantity of mutilated banknotes? People could be keeping these mutilated notes at home because there is no public announcement on where to take them while the bank is printing to replace when it does not know the actual amount to be replaced.
CURRENCIES HAVE UNIQUE FEATURES such as its color, size, denomination and others and a change in some of these features means something quite different from the previous. Currently the Liberian dollar is in denomination of $5 Red, $10 Blue, $20 Maroon, $50 Pink/Purple and $100 Green but the new CBL printing is showing changes in colors, features and denomination-which is a change to something new.
THE GREEN COLOR OF THE UNITED States dollar gives it a unique feature which is recognizable and this is the same with other currencies and it sounds awkward that the Treasury department of the United States will attempt to print new banknotes to replace damaged ones by changing the color of the United States dollars or adding a new denomination.
IN MAY 2016 WHEN THE ALBERTA Wildfires damaged a sizable amount of the Canadian banknotes, the Bank of Canada introduced a process where the amount of damaged banknotes were known and replaced through the printing of new banknotes of the same color, size, features and denominations.
IN ITS REQUEST, THE CBL DID not state clearly to the legislators that it wanted to introduce a new denomination and to also carry on changes on the existing banknotes such as color.
CBL ALSO FAILED TO STATE THE amount of banknotes that have been damaged during these years that need to be replaced. Banknotes get damaged in two ways, either contaminated or mutilated but in Liberia’s case, the CBL cannot say how much is damaged.
The CBL new printing is almost the introduction of a new currency since the bank is altering the existing banknotes by introducing new features and new denomination which did not exist with the previous one.
WHEN CENTRAL BANKS REPLACE mutilated banknotes- it prints exactly the same banknotes as the previous one instead of adding new features which makes ultimately a new currency like the case of Canada, Ireland, England and other countries.
IN THE UNITED STATES OF America for example, plans to put a woman on the $10 bill which is expected to happen in 2020, four years from now has already been discussed ahead of time but for Liberia, the Central Bank has decided to change the color of the currency and introduce new denomination within a short period of time, not giving more time for discussions on features of the new $50 banknotes as the bank had said it will shortly introduce the new banknotes.
THE MANDATE OF THE CBL does not require the bank to singlehandedly introduce a new currency by changing the color of the currency and introducing new denomination without convincing the public on the rationale for these big changes.
THERE IS NO JUSTIFICATION IN the CBL statement for the change in color of the currency when it has requested the Legislature for go ahead to print in order to replace mutilated banknotes.
THIS IS CLEARLY AN ATTEMPT TO introduce new currency instead of new banknotes on the Liberian market as claimed by the Central Bank.
IN THE WAKE OF THE PRONOUNCEMENT of changes to the Liberian currency, the CBL is yet to clearly state to the public how much has been infused in the local market through its loan scheme which was implemented by former Governor J. Mills Jones.
EVEN WITH PRESSURE FROM THE Legislators insisting on knowing essential details about the CBL loan program including an audit, the bank is yet to submit to these important check and accountability processes but is instead clearly introducing new currency on the market.
IN THE ABSENCE OF TELLING the Liberian public the actual amount of money infused in the market through the Dr. Jones led loan scheme, it is a risky financial decision to print more money when the total quantity of money currently in circulation is not made known.
WITH POLITICAL ACTIVITIES coming closer and Dr. Jones likely to contest as he has accepted a petition to run for the presidency, it is likely that more Liberian dollar could be pumped into the market during the political period.
ALREADY THE LIBERIAN DOLLAR is surplus in the market, almost worthless with many people not even wanting to have it in their possession, thereby making the CBL argument of printing new banknotes unimaginable.
NEW BANKNOTES ARE PRINTED in the wake of scarcity due to spoilage of the exiting banknotes to help get the currency at a level to which it was when it was originally printed but in this case, there is no justifiable reason why the CBL will be printing additional banknotes when the Liberian dollar is already devalued.
THE CBL MUST HAVE SOME hidden agenda in its new drive to print new banknotes, making changes and adding denomination as this will increase the supply of money on the market.
LIBERIA COULD LIKELY BE heading for one of the worse stages of inflation- hyperinflation which occurs when money supply increases, making prices to skyrocket more than 50% a month.
HYPERINFLATION TAKES PLACE when instead of tightening the money supply to lower inflation, the government keeps printing money to pay for spending.
THE CBL INFUSION OF NEW banknotes without a known quantity of damaged banknotes to be replaced is a recipe for increasing the supply of money in the economy and will increase the inflation to a hyper level in the months heading to the 2017 general and presidential elections.
HISTORY OF HYPERINFLATION IS common as during the Weimar Republic in Germany in the 1920s the German Government printed money to pay for World War I and that put the money in circulation from 13 billion to 60 billion.
HERE IN AFRICA, ZIMBABWE printed more money to pay for the war in Congo between 2004-2009 and today the country is still experiencing one of the worse hyperinflation in history.
THE CONSEQUENCES OF PRINTING new ‘banknotes’ without the damaged ones known could be used to increase the money in circulation and in the ensuing years, the country could experience hyperinflation.
IT MAY SOUND PLEASANT TO THE ears that the CBL is printing new banknotes but the long term consequences might be grave for the economy.
IT ALSO MEANS LIBERIA WILL have banknotes of the same denominations but different colors in circulation rarely seen in any country around the world.