Lower exchange rates: stop spending cuts and not withdraw money from commercial banks
Again, money exchangers give LD154 for $ 1, even if less than 60 days ago they gave LD170 for $ 1. In August of this year, using $ 5, you could buy LD640 a gallon of gasoline and get LD210 back in change. Today you get LD60 in exchange because the exchange rate for USD5 has changed from LD850 to LD700.
About a year ago, on November 11, 2020, Mr Obediah Johnson, reporting for a local newspaper, said that ââ¦ the sharp drop in the exchange rate between the Liberian dollar and the US dollar would exacerbate economic constraints and impose hardship for the vast majority of Liberians, most of whom are impoverished.
Mr. Sam P. Jackson, Masters candidate at the London School of Economics and strong supporter of the administration of the Ruling Coalition for Democratic Change (CDC), in an interview with the Liberian News Agency (LINA Panorama ) on October 18, 2021, praised the CDC Administration for its âeconomic policiesâ.
Mr Jackson claimed that the appreciation of the Liberian dollar would allow money exchangers to get more US dollars and that Liberian exporters would get more US dollars than yesterday for the same goods and services, adding: âIt is true that a few business owners take advantage of the exchange rate to make huge profits; but that’s what the capitalists do â.
Now, let’s think for a moment about how policymakers in a serious economy handle a policy instrument like the exchange rate.
The following are taken into consideration:
Changes in public spending or taxation.
Changes in the money supply; and
An attempt to increase production in order to solve economic problems such as the exchange rate, according to (www.Investopedia.com.)
Simply put, what are the factors that increase the value of the Liberian dollar? They are:
Increase in the US currency by selling more exported goods,
Increase in US currency by borrowing more US dollars,
Increase in US currency by soliciting donations from those who can donate US dollars etc.
Alternatively, the following actions can be performed:
The government can reduce the printing of new banknotes,
The government can withhold a certain amount of Liberian dollars from the market, thereby reducing Liberian dollars in the market.
Mr. Sam Jackson, the newly converted apologist for the Weah regime, recently hit the airwaves, making general and frivolous remarks without discussing any substantive factors affecting the exchange rate.
While Mr. Jackson pontificated a tautology on economics that CDC fanatics celebrated, we at the LPP take the affairs of the Liberian people much more seriously and have addressed the problems of one of the bad tax policies (reducing tax rates). spending) and misguided monetary policy. (high interest rate) policy of President George Weah’s administration in two previous separate press releases. In our August 24, 2021 post, LPP asserted that while it “accepts the theory and practice that the government can cut spending, however, the huge reduction of US $ 33 million as reported in the budget National 2021 will affect government operations and reduce cash flow to businesses. such as newspapers, office equipment / supply stores, gas stations, restaurants, local farmers, etc.
Later, on August 30, 2021, the LPP called on ââ¦ Liberian lawmakers and stakeholders to encourage President George Weah to end the practice of offering attractive interest rates (20%) to commercial banks. By virtually enticing commercial banks with such enticing giveaways, the government of Liberia unwittingly encouraged commercial banks to seek higher returns on investment, which in fact resulted in a 12% reduction in the interest rate for loans. money to businesses, since they could now earn more money in interest income by purchasing government promissory notes offering a 20% interest rate.
Why did our country start using two currencies? The International Monetary Fund (IMF) tells us that the said introduction of a dual currency regime was made necessary by the imperative to solve the problem of liquidity shortage in our economy and also to finance development projects aimed at stimulating the economy and maintain cash reserves for emergencies. , including the practice of keeping a reserve for use in maintaining and supporting monetary policy.
ââ¦ The oil crises and global recession of the 1970s and 1980s eroded cash surpluses; therefore, the government introduced the local currency alongside the US dollar, according to the International Monetary Fund.
In short, add the Liberian dollar when a government goes bankrupt or when the local currency appreciates. Well, our Liberian government has withheld the Liberian currency (the billion DL missing) from the market, thus reducing the quantity.
Our economic advisers cut spending when they cut the budget. In addition, he reduced the Liberian currency in the market when he offered a 20% interest rate on government promissory notes.
Interestingly, why has the government withdrawn additional liquidity from the market in exchange for promissory notes offered to commercial banks when it has reduced the money it usually puts into the market by cutting spending?
In addition, the LPP believes that money borrowed from commercial banks would not have reduced the amount of money in the market if the economics team had included the proceeds from the sale of promissory notes as cash inflow. and increased public spending. (See page # XXIV of Budget 2021).
Suppose for the sake of argument that Mr. Jackson might not believe that cutting spending and reducing bank liquidity did not reduce the value of the Liberian exchange rate; however, Liberia’s economic records do not show that Liberia received additional US currency, which is the other factor that would have had the effect of reducing the value of the Liberian dollar exchange rate.
In addition, records show that the Liberian dollar supply was valued at DL 19 billion as of March 31, 2021 (DL 41 billion minus DL 22 billion outside the banking system).
The Central Bank of Liberia’s 2020 Annual Report, released on March 31, 2021, contains information on the total supply of âbroad moneyâ and the total supply in Liberian dollars.
On pages 39 and 40, the annual report of CBL shows that the âTotal Broad Moneyâ (M1 and M2) amounted to LD127 billion; of this amount, 85 billion were in US dollars and 41 billion in Liberian dollars; of LD41 Billion, LD22 Billion is reported to be outside the banking system, leaving LD19 Billion in the banking system. So how does the CDC’s economic management team explain the Persistent and Frequent Syndrome scenario of no Liberian dollars or severely mutilated Liberian banknotes in CBL and commercial banks?
So, Central Bank of Liberia (CBL) records show LD 19 billion was in the banking system, but overwhelming evidence suggests that the reason why there are no Liberian dollars or severely mutilated banknotes in the banks is because the CDC bigwigs and their cohorts hid a huge volume of the missing 16 billion Liberian dollars in their various homes and the homes of their concubines, waiting for the slightest opportunity to launder (clean up) said dirty Liberian dollars. and stolen and trying to legitimize them as genuine assets in banking institutions; hence the shortage of Liberian dollars in the market, causing the current sharp decline in the standard of living of the average person, totally contrary to President Weah’s âpro-poorâ claim.
But we at the LPP issue an unequivocal warning to President Weah and his henchmen that we will not tolerate any criminal attempt to legitimize the theft of the Liberian people’s $ 16 billion to sneak into their big bank accounts. The administration led by the LPP, coming to power in 2024, will have to hold any criminally guilty person responsible in compliance with the full force of law.
Let’s revisit this claim by visiting the national budget figures and sales of promissory notes to commercial banks. Did CDC budget experts recklessly cut spending and not reallocate savings to fund other programs?
In addition, we challenge the CDC administration to tell the Liberian people where they keep the money from the proceeds of the sale of government promissory notes. So, LPP says it is downright nonsense when Minister Samuel Tweh persistently peddles his pathological lies to the Liberian people that they are not missing Liberian $ 16 billion.
Again, our analysis shows that CDC budget experts did not include cash received from domestic creditors in the national budget as cash inflows.
In order to mitigate the negative impact on the economy and the economic hardship on the population, induced by such absurd policies, the LPP recommends the following:
Restore lower spending.
End sales of 20% promissory notes to commercial banks.
Include the proceeds from the sale of promissory notes in the national budget.