Liberia has a shortage of cash. Within living memory people have made change by tearing a bill into pieces. When banks dispense cash, they often hand out those mutilated banknotes, which are worth ... what?
But there's more. The banks are complaining of a nonperforming loan rate of 56%, which of course means that when someone comes to get money out it puts a strain on the bank. A few years ago several banks started repaying deposits made in US dollars in a mix of US and Liberian dollars. That caused quite a stir at the hospital when payday came.
They are also complaining that:
Governor Tarlue named several reasons behind the money shortage which he said was exacerbated by COVID-19, the high demand of money during the festive seasons (July 26 and December 25), the limited ATM machines in the country (157) and the December 8 Special Senatorial Elections. Chief among them, he said, include the circulation of huge quantity of money outside of the banking sector. As of December 2020, he said L\$25.3 billion was in circulation in the Liberian economy, and of that amount, the currency outside of the banking sector was L\$22.5 billion, representing 89.4 percent of the money in circulation.
Except where is the money? Hiding under mattresses? You'd think that some of it would have to creep out from time to time to buy groceries and cell phone minutes and fabric and other everyday items. How actively is money really circulating in the markets? I can't find out, but reports say business is bad.
The government bought some fresh bills last year--or maybe they didn't--at any rate there weren't any fresh bills when they went looking. They want to print 27 billion new L\$, but they don't have the money to do it (about \$21 million).
The exchange rate isn't helping--imports cost more.
I can't speculate with any certainty, because news is unreliable at best. I doubt that foreign speculators have been buying up Liberian dollars (as one rumor has it)--I haven't thought of a way they'd make money that way. Maybe I don't have a dishonest enough mind. Probably this is an unintended consequence of something else.
Lockdowns haven't helped cash flow. FWIW, Liberia has had 84 deaths attributed to coronavirus--malaria dwarfs this by orders of magnitude.
Interesting, and not the first time trade and an economy have been hampered more by shortage of banknotes & coins than by shortage of wealth & income.
ReplyDelete(of course when your notes already are denominated in fairly low values, it doesn't help that inflation means you need twice as many now to buy the same thing that required half as many when they were printed 4 years ago .. .)
The 2016 notes are pretty high-tech (from Crane) and therefore expensive to print. The 1999 notes still circulate and are legal tender, so I wonder if it might be cheaper to solve the immediate crisis by printing more of those designs?
Also, on account of inflation, just having some new higher-denomination notes might have outsize effect on the problem, as then existing notes in current circulation would be used more for change rather than being used in multiples to add up to the full cost of the transaction. (although lack of smaller denominations is part of the problem as partial-bills mess up the overall supply)
Of the solutions such as 'Notgeld' and other scrips, commodity-in-place-of-currency, and use of postage stamps, I'm wondering if L$150 and higher denominated postage stamps might be a useful substitute temporary banknote that is cheaper for the government to print - and smaller stamps would solve the problem of notes being cut up to make change.
Venezuela seems to be shifting to use of US$ at retail in practice, and is suffering a shortage of banknotes in $1, $5, and $10 values also, but electronic payments by phone and keeping credit on store-ledgers is much more possible there (although not without difficulty).
Almost every Liberia post here leads me on a wiki-wander where I learn a lot, although not necessarily about Liberia. I'm happy to have spent most of my life in high-trust societies.
Interesting thoughts. I'm happy to provide rabbit holes--and to live in a high-trust society.
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