By Nasratu Kargbo
Sierra Leone’s Bank Governor Kelfala M. Kallon has explained reasons for his use of the word “bribery” recently during the Economic Association of Sierra Leone’s 1st annual conference. The governor faced criticisms for his choice of word whilst trying to narrate how the central bank tried to address the shortage of the Leone in the commercial banks from June 2020 to July 2021. The governor explained that due to the shortage of Leones in the country and hoarding of monies, they had to resell Forex reserves which according to him were a total waste.
This time speaking as a panellist via zoom on the 25th November 2021 on the topic, ‘the case for redenominating the Leone: A comparative discussion on the challenges, benefits and lessons from within and outside the sub-region’, the bank governor said at the advent of the shortage, they resorted to monetary operations, targeting people hoarding the local currency so they could bring the cash back into the banking system. He said the central bank had to communicate to commercial banks to inform their customers that they sell dollars for Leones, so those hoarding the monies could bring in the Leone in exchange for dollar, but admitted the monies ended up being hoarded again and the process goes in circle.
Kallon said after doing this for over a year, they realised they have been wasting resources on an activity that is not sustainable and hence referred to the process as “naked bribery”. He admitted it was at that point that the management of the central bank decided to redenominate the currency. Explaining how the country got into such a crisis, Kallon they were expecting that 70% or 80% of all the currencies the bank of Sierra Leone issues out to the public were re-deposited into the banks, but they started seeing 20% to 10% of re-deposits”. He added that because no central bank holds the adequate amount of money that is equal to its GDP, due to the multiplier process, the country went into crisis.
He said as a result of the crisis, the country had to increase its orders for more money, and delay in arriving, due to COVID 19 led to the monies disappearing into private faults immediately the landed. According to the governor, this caused massive hoarding which threatened the viability of the banking system and led to an economic and social crisis.
The governor explained some of the reasons a country would redenominate its currency could be to provide a psychological boost for the citizens, to control the currency substitution and deal with inflation.
When asked whether risk measures have been put in place should there be problems, the bank governor explained that they have been committed, and that this process may only go bad if the country is not macro stabilised. He noted that their risk mitigation strategy is their commitment as central bank. “We hope the commitment of the government, Ministry of Finance and especially Parliament that approves the budget will ensure there is fiscal prudence”, he stated.
He promised that as an institution, they will play their part in ensuring macro -stability and will inform other stakeholders of the importance of the process and how it can enable the country to receiving great benefit from the redenomination.
The past days have witnessed heated debate on the governor’s choice of word with some calling for probing by the Anti -Corruption Commission .
Copyright © Politico Online 29/11/21
