Liberia: Central Bank Governor ‘Losing Control’ of Foreign Exchange Rate
MONROVIA – It is becoming glaring that the Central Bank of Liberia (CBL) is doing too little to contain the rising exchange rate between the U.S. Dollars and the Liberian dollars.
Report by Lennart Dodoo, [email protected]
The foreign exchange rate has been rising steadily without fluctuation over the past several months. This, is to a large extent, affecting local businesses in the country and the economy of the country.
It is the CBL’s responsibility to fix the exchange rates of the domestic currency in terms of foreign currencies. The CBL is expected to hold these rates in narrow limits in keeping with its obligations as a member of the International Monetary Fund (IMF) and tries to bring stability in the foreign exchange rates.
The CBL is also to advice the Government of Liberia on economic and money matters as inflation or deflation, devaluation or revaluation of currency, deficit financing, balance payment, etc.
The current rate published by the Central Bank is US$1 to L$180.00. However, the rates in the streets are way higher than the official rate of the CBL and little is being done to curtail this. The rate is even higher in stores which are mostly owned by foreigners where local sellers buy goods on whole sale to sell on retail basis.
Last week, the exchange rate witnessed a dramatic climb from 180 to 187 and 188 in some areas. Economic pundits have predicted that it might reach 195 before the end of May, if nothing is done to control the loose market. Currently, the CBL has fixed the buying rate at L$180 while local forex bureaus are buying at approximately L$188.
This is affecting market women like Faith Nyankun who sells used clothes at the Old Road Market. She tells FrontPageAfrica, “when I go to the store when the rate is 80 outside, in the store it will be 89 or 90 and this causes serious problem for us.”
This then causes her to sell her goods at a high price to make up for the extra she had to pay to meet up with the rate being demanded by stores selling to retailers.
According to the IMF, the exchange rate depreciated by 26 percent over the year, and inflation accelerated to 28 percent at end-December 2018. This, the IMF said is detrimental to the living standards of the most vulnerable Liberians who earn and spend primarily in Liberian dollars and threatens the success of the pro-poor agenda. Growth for 2018 was estimated at 1.2 percent, while the forecast for 2019 on current policies has been revised down to 0.4 percent from 4.7 percent.”
Upon taking over as Governor of the Central Bank in July 2018, one of the measures Mr. Nathaniel Patray put into place as a means of curtailing the rising rate was banning forex bureaus and sidewalk money exchangers from displaying the rate in the open orher than in their bureaus. It is unclear what he was expecting to achieve by that regulation.
“All rates should be displayed inside the bureau; we know that if you went to a forex bureau you will see that each individual has his own rate. The rate that is published in a bureau should be used by all money changers within the bureau,” he said, warning that the Central Bank would prosecute violators at the time.
Patray at the time called on the money exchangers to legalize their status with the Central Bank of Liberia or risk closure or being chased after by the police and other security apparatus.
“The enforcement will entail the closure of unlicensed forex bureau from the street, removal of all illegal forex exchange operators from the streets, confiscation of monies belonging to illegal operators,” he said.
The plan, according to him, was aimed at implementing every necessary complimentary measure that will help reduce the amount of currency on the market and outside the banking system and by extension broader exchange rate stability over a period of time.
But almost one year down the line nothing has changed, despite the infusion of US$25 million to mop-up excess liquidity. The mop-up exercise unarguably did not yield expected results.
An audit by the General Auditing Commission (GAC) into the disbursement of the controversial US$25 million found that Mr. Patray failed to utilize his authority and functional independence regarding the exercise surrounding the disbursement of the money, according to findings contained in the ‘Agreed-Upon Procedures’ Report of the General Auditing Commission released last Thursday.
Governor Patray, according to the findings, indicated to the GAC through a documented review questionnaire that the Mop-Up Exercise was authorized by The Economic Management Team. However, the Chairman of TEMT, Finance and Economic Planning Minister Samuel D. Tweah indicated to the GAC that the TEMT did not issue the CBL a written instruction for the mop-up Exercise; rather, the mop-up strategy was authorized by TEMT. Minister Tweah indicated in his documented interview questionnaire that TEMT authorized the CBL to re-infuse the Mopped-Up Liberian Dollars into the market through the commercial banks. The TEMT and the CBL did not provide evidence of the authorization to re-infuse the mopped-up Liberian dollars into the economy as per the MOU.