The Bank of Sierra Leone recently re-launched its campaign to control the ever rising influence of the United States Dollar on the Sierra Leonean economy. The move, according to the bank, is aimed at saving the Leone which is the legal tender of the country.
Bank officials say the uncontrolled use of the Dollar has contributed to the inflation of the leone. They also say this has made life difficult for the ordinary Sierra Leonean as tenants, restaurant owners and airlines, among others, demand payment in the Dollar rather than the Leone.
To get a perspective about this situation, Kemo Cham spoke with the spokesman for the Bank of Sierra Leone, Beresford Taylor, in this week’s edition of The Interview.
Below is the full transcript.
POLITICO: Firstly, this is not the first time we have heard this…campaign, if you like, of the de-dollarization of the economy. What has changed now?
Taylor: Well, a slight correction there. This is not a campaign. You and I know, being media persons, that if the Bank of Sierra Leone wants to embark on a public campaign or education campaign on such a matter…the approach will be completely different. What we are trying to do is to draw attention…the public’s attention … the government’s attention… the attention of the business people…the exporting community, that we have a big challenge in Sierra Leone and that is the economy is suffering badly, because the dollar is too strong to the Leone, making our import too expensive. Simple!
The second point is, we do not have adequate exports to support our imports, so we cannot trade off, meaning that where you do not have adequate strong export to backup your import and you have a weak currency, the people will suffer. It’s as simple as that.
So what has changed, since this is not the first time?
Well, to be honest with you, as a bank we have been drawing the attention of the general public to the situation for a while. The approach used previously was to kind of engage the institutions who have significant authority or leverage, and those are the commercial banks, and inform them that they should implement or observe to the letter the rules around foreign exchange. Now, obviously it has a negative impacts especially on those who are in the habit of using foreign exchange within Sierra Leone, in other words, for local transaction. And they were pretty powerful. But the bottom line was that we had significant resistant to the policy. And at a point the bank decided to weaken the implementation of that policy just so that we can have peace…But why are we doing it now? because as you are aware, yourself, the exchange rate at the moment is reaching an unsustainable level and when the governor was replaced and we have a new governor in the person of Dr. Keifala Marra, he made it clear that his number one priority was to bring some sanity in the foreign exchange market and ensure that we have some stability. Note that [by] stability in the foreign exchange market we are not talking about sharply bringing down the value of the dollar to the Leones or to ensuring that the Leone appreciates significantly. What we really want to see is stability, predictability in the exchange. That way we are sure we can bring back confidence in the business community and in the private sector of the country. But then there are challenges in achieving these objectives. That the bank of Sierra Leone on its own can deal with. And those we are taking care of. There are those that we have to do in consultation and in partnership with relevant government authorities, institutions and agencies. We have engaged those institutions and agencies and we are having a very amicable and positive working relationship with them. There is clear consensus that we have to work together on addressing some of the problems that we are faced with, which is bringing stability into the foreign exchange market. And then there are those who think there are challenges we can do without. And we can do without them because we do not need those kinds of challenges within the confines of our economy. That is the use of foreign exchange especially the dollar within the precincts of Sierra Leone, bearing in mind that the currency in Sierra Leone is the Leone.
Politico:You made mention of the law. Beside the fact that the Leone is the legal tender, do we have any legislation that we are using to ensure that we have what we are trying to achieve here?
Well, the Bank of Sierra Leone has the foreign exchange regime that is more or less supervising or guiding the foreign exchange market in Sierra Leone. It states clearly what can be done within the borders of Sierra Leone, so far as the trading in the foreign exchange is concern. Now for the policy you referenced, relating to law that the bank of Sierra Leone is requesting the commercial banks to implements, we only asked commercial banks to ensure that they observe, maintain the implementation of the guidelines contained in the foreign exchange regime, nothing more. In other words we only asked commercial banks to enforce the law.
So there is a law already?
Yes there is a law. We are not only talking about one law, but there are different laws relating to the currency. (A) The bank of Sierra Leone Act Section 22 clearly makes provision that the Leone is the legal tender, meaning that within the borders of Sierra Leone, there can be only one currency in use for transaction, that is the Leone. Now the foreign exchange Act stipulates how we can trade in other currencies other than the Leone within the borders of Sierra Leone. Now let us have some things clear, the bank is fully aware of the existence of these laws, we are also aware that a lot of their provisions may be outdated and may require a review or some legislations to modernize them. So the bank has accepted that that will be looked into and the relevant regulations governing the foreign exchange trading and marketing in Sierra Leone will be reviewed and brought to a position where it is at par with modern times. But that is not to say that we are not experiencing some of the ramifications of using the dollar in Sierra Leone. More so that we do not have adequate exports to backup our demands for dollar. So we are appealing to people. We believe that the use of dollar in Sierra Leone is a behavior, it is, more or less, people like using the dollar, it is about the strength of the Leone. The bottom line is that if we continue to deal with the dollar as a means of exchange in transactions locally, we are only increasing or hyping the pressure on the demand for dollar for we do not have the supply to back up the demand for dollar. What that means is that we will be adding on to existing pressure to dollar for import. If you piled that up with the current economic situation in the country which we have a significant drop in productivity, unemployment, as a result of Ebola and the drop of iron ore prices, there will be increase in the cost of living for every one.
It is good you mentioned iron ore. Some official reports I have read made mention of that is the reason why you just suddenly came up with this?
No. Iron ore has nothing to do with this and as a matter of facts, the iron ore is just a part of the problem. The virtue of our situation is we have seen a down turn in the supply of dollar within the economy as a result of drop in our export. One of things we export of course is iron ore, but then there is a stiff demand for dollar which cannot be attributed to productive activities. You can see reason and say well, we are engaging in investments or in production… in setting up plants for the development of exportable commodities in the economy. But then at the moment we are not. Then the question is why do we need as much dollars as we demand in our economy at the moment. The obvious answer is as a result of speculation and the use of dollar within the boarders. We are only saying this will not in a way sharply reduce the strength of the dollar or to weaken the dollar to the Leone or enable the Leone to appreciate. What we are saying is that if you can remove that challenge away, which we can, is something that we can do, Sierra Leoneans can work on that together. One can say well, I am not going to ask for price for my goods and services in dollars, or I am not going to pay dollars for them. That challenge disappears almost immediately.
Is there any penalty and who is responsible to ensuring the law is enforced?
Let’s say at the moment that we not quite clear that we have sanctions attached to not using the Leone. That is not to say there isn’t any penalty. In other countries and even in Sierra Leone, we have a number of jurisdictions without clearly spelt out penalties, but then a declaration of legality is an indication that the court can act. In other words, we have seen precedents made in cases that become the law as a result of the court’s decisions on those matters. So it is not to say that because there are no penalties the courts cannot adjudicates, rather it is for the court to adjudicates and where the culprit is found guilty, the court levied penalties as it deem it fit. That becomes the penalty almost immediately.
Maybe something has got to be done… for example to people who ask for dollar in the case of rents .
To be honest with you, I agree that some kind of steps should be taken. Laws should be made… maybe, that will clearly spell out the penalty for non compliance. But for us at the bank that is not the primary focus . Adjudicating penalty and punishment, I think, can help quicken the process but for us, the most lasting and beneficial way of doing this is to get a change of mind. Get people to behave in a manner that will be supportive to the economy. There are lots of young people engaged in this. You can penalize them for all you care, but if you can catch them. We should also know that when deals are made it is often between two or three people; even if they agree to something they are not going to report it. When you are also faced with a very stiff competition in the market, you are likely to take those steps to ensure that you are at an advantage.
We can have the law to punish people, but for it to be effective there should be people to report it.
Is that what the sensitization is about?
Exactly! An acceptance that this is wrong.
If for example I want to rent a place and they ask me to pay in dollars who should I go to?
Of course you should know. The police
hahahaha the police should handle that, not the central bank ?
We are not a law enforcements agency. That’s why I said sensitization is the most important thing. Now if you can get the information to the police and the police also understands that this is wrong as it is causing harm to our economy, they understand that and the court has a responsibility of setting penalties and adjudicating penalties, then we would begin to see how the penalizing aspects can be done… Then we will not have the need for people to go out and look for dollars, which is adding to the pressure for dollar for imports. The bottom line is it is good to have the laws, it is a lot more effective when you have a change of minds and change of behavior, and it is a lot more effective to use the law. So we are using the long pronged approach, but the emphasis is on behavior. We will like to see the law more enforced, we would like to see the court acts more, we would like to see the police act more, but we will love it the more if we have a change of mind.
This is the same behavior change you have been after since 2011. Maybe the debate has been long before that?
In 2011 the strategy was completely different. That was enforcement; it was not about behavior change. It was about the banks enforcing the laws. We are about outreach engagement and enforcement, but we want to engage first.
What is the plan B for the bank, in case this fails?
Well, it depends on your objective that you want to pursue. (a) I do not see us failing and (b) we are going to embark on this for as long as it takes. Now let me be clear about what the objective of the bank is. The objective of the bank is simple. To ensure that Sierra Leoneans become aware that the use of dollars within the precincts of Sierra Leone is hurting our economy. We can do without it. This is not to say we will see a drop in the exchange rates tomorrow. It only is a way to ensure that we stabilize the market significantly. Now to me we are not just going to engage and talk, we are building champions within communities by enhancing public awareness of the use of dollarization and we know if it affects your pockets, it affects your family, you are going to do something about it. We hope we can translate these messages effectively, and once the message is effectively understood, it can be translated into behavior change. We believe that Sierra Leoneans know the issues and the issues surrounding bread and butter are important to the life of every Sierra Leonean. But then to be pessimistic at the start of such an outreach will be out rightly wrong. We are very, very optimistic. This is the beginning and we intend going far and we also want to take our people along and that is the media. That is why we are engaging you.
(C) Politico 23/06/16
