Central Bank Governor, Prof. Kelfala Kallon clears the air on strings of misinformation in the financial sector

Withdrawal limits were not set because of shortages. One of the prime reasons for re-denomination was the hoarding of currencies that was costing the bank a lot of resources. When currencies are printed, the amount of currencies to be circulated is crucial. No one prints an amount of currency at M1 at a time. It will be costly and inefficient. When we re-denominated on July 1, 2022, we realized on July 12th, 2022, just a few days later, that monies were not re-deposited in the banks.

We had planned to introduce it after the national switch comes on, so the demand for cash will be minimized. But when we saw so many withdrawals and no re-deposits, we realized that hoarding was a likely cause. We then decided to impose cash limits to mitigate this sad development. So it was not a shortage of new notes.

In this process of circulating new notes and withdrawing old notes, enough space is needed for storage, so that it will be seamless. The infrastructure that we have at the bank is limited as only one receiving bay is available. Payments are also made through this single bay. I only knew of it recently. Huge old notes were not expeditiously received from commercial banks as expected. This led to a logistical snag.

Commercial banks do have insurance limits as to how much they hold in the vaults. They don’t have enough space for the old monies based on their insurance cover until we receive these monies. That was the first snag. The other snag was even before the launch of the new currency, we received an intelligence report that business people were willing to receive old monies to pay a premium for exchange.

We then realized hoarding appeared rampant as old notes serialized since 2015 were exchanged on the counter for new notes. We then put a withdrawal limit of 30,000 new money (formerly 30 million) a week to spend in the country, which we considered generous as most people don’t even earn that in a month.

Another snag was our note destroyer machine, which was recently serviced, malfunctioned when we commenced destroying old notes. Engineers successfully repaired it. So we’ve continued to destroy the old notes for new ones to give space for the new notes.

These are not economists. The quantity of money in circulation is dependent on income in the economy. If there is high productivity, then the demand for cash will be high. The quantity of money in circulation will depend on how much is printed. Whether the economy is import dependent or export-dependent, whether Wellington Industrial estate is developed or agricultural productivity is maximized, these are things we desire. These have nothing to do with the number of zeros on the currency. The amount of money in circulation is dependent on income. If income increases, the central bank prints more money, not the number of zeros on the money. If income rises, the value of our transactions rises. People will then need to hold more money. The demand for cash is dependent on income and not productivity.

Whether the economy is stagnating or growing, the value of money held is proportional to income. So it’s sheer nonsense that the economy needs more productivity before re-denominating the currency. Hopefully, we are going to have our national switch so we don’t need too much cash. We are going to digitize. This is our goal, to reduce the amount of cash in circulation as, presently, it is too high.

We hope before the end of this year. COVID-19 had closed down so many projects. We hope to commence soon, to start to benefit from what Kenya, Nigeria and other countries do, to reduce the amount of cash the Central Bank prints, and ultimately create more efficiency in the system.

Sierra Leone has always supported the ECO, so also supports the convergence criteria. Since COVID-19, the years, 2020 and 2021, were lost years. The deadline for convergence criteria was moved to 2027or 2029, not too sure of the date, due to all the challenges. Before COVID, many countries met 3 of the convergence criteria. In Sierra Leone, we met 3. Now, we have other challenges like the Ukrainian war. We are in support of the ECO and the convergence criteria, to avoid the mistakes Europe made when the ECO will be finally launched. The convergence criteria are good, not only for the ECO currency but for our economy.

Judging from where I come from in this country, it’s bad manners to praise oneself. The public should judge what my achievements are. However, under my leadership, we managed to stabilize the economy until COVID, then the war. We are now about to launch the national switch. Out interventions as responses to COVID were applauded by our development partners as one of the best in the region. Our major challenge in this country, so also in Liberia and in other neigbhouring countries, is that we have a young population who sees prosperity out of chaos. These are the child soldiers, who are now adults. I’m responsible for monetary stability. I’m also equally worried about social stability. I cannot sit here to say, my only core function is to keep prices down. I also have to ensure that what happened on August 10 (mass protests and killings), do not happen.

For instance, the special credit facility for food, fuel, agricultural credit facilities, and graduate-start-business facilities, all these do not come from the traditional core functions of the Central Bank, but to ensure stability in the system.

For instance, you want to solve the electricity problem, people destroy the transformer. You want to re-denominate to ease business transactions, the same people collude to launder or hoard monies to sabotage the system.

With the re-denomination, we did a lot of sensitization with the people. Just a small set of people who collude to destroy something good for the country. That is the key challenge, not only for me but for all policymakers.