Image of the old Leones – Image source: www.googleimages.com
Introduction
The name of Sierra Leone’s legal tender is ‘Leone/’Leones’. The Leones were due to the independence status the country achieved in 1961. Before the launch of the Leones in August 1964, Sierra Leone’s legal tender was called the British West African Pound.
The pound faded away almost three years after the country gained its independence from Britain. Immediately the Leone was launched as the nation’s legal tender, the Leone was valued at two leones to one dollar.
The West African Pound was used as legal tender in the four main British West African territories – Nigeria, Ghana, The Gambia, and Sierra Leone.
However, the wake of independence saw the West African nations taking charge of their currencies and other functions while putting aside the currency of their colonial Master.
The Leone has since been the medium of exchange and has experienced depreciation over a long period. In a bid to strengthen the currency, Sierra Leone’s government and central bank governor decided to redominate the currency.
“The redenomination of the Leone will enable our currency to appreciate against the dollar. The Leone will have more value and better serve our economy,” — those are excerpts from an interview delivered to Xinhua News by Sierra Leone’s Central Bank Governor before the controversial launch of the New Leones.
It is over 90 days since the current bank governor of the small West African nation made the above statement in the days leading to the launch of the ‘New Leone/s’ in the country. The launch was not without debate and controversy, but the Governor, with the government’s support, set out broad objectives for the new currency.
The bank governor’s objectives for the redenomination of the Leones
Professor Kelfala Murani Kallon is Sierra Leone’s current Central Bank Governor — a position he assumed consequently to the 2018 Presidential and Parliamentary elections that brought in the country’s fifth democratically elected president — H.E Dr Rtd. Brigadier Julius Maada Bio of Sierra Leone’s Peoples Party (SLPP).
Over three years into his five-year term of office on the highest seat in the country’s banking system, the 18th Bank governor of the small Anglophone West African State introduced policies leading to the ‘redenomination’ of the country’s legal tender.
‘Redenomination’, according to www.investopedia.com, is the process of recalibrating a country’s currency, typically due to hyperinflation and currency devaluation whereby an old currency is exchanged for a new one at a fixed rate.
According to the bank governor, the new leones will be without the three last zeros in the old leones. For example, the redenomination will see the 5,000, 10,000, and 2,000 leone notes recalibrated to five, ten, and two leones, respectively.
The initiative to recalibrate the leones proposed by President Julius Maada Bio’s led government was faced with mixed feelings from the citizens at home and abroad. Notwithstanding the controversial views regarding the launch of the ‘New Sierra Leonean Leone/s, the President and the Central Bank went ahead with the policy on July 1, 2022. According to the governor, the policy would be a saviour of the Leones from the giant US dollars, adding that the redenomination would also help to bolster the country’s bad economy.
The government’s initiative to redenominate the country’s currency caught the attention of various media institutions within and outside the country. The main objectives and reasons attributed to redenominating the Leones, according to the bank governor, were, among others, to make it easier to carry cash, and strengthen the weakening currency, as can be evidenced here, here, here and here.
While it may be a little too early to conduct a comprehensive assessment of the policy to redenominate the Leone, DUBAWA decided to track the policy after almost 15 weeks in operation to ascertain whether the policy’s objectives are on track.
What are financial and economic analysts saying about the redenomination of the Leones?
DUBAWA solicited the views of an Economics expert in Freetown regarding the status of the Leones and how it has impacted the country’s economy since its introduction.
Before his general assessment of the performance of the currency, Jacob Kaindoh, Financial, Economics & Management Analyst, told DUBAWA in an exclusive interview that the timing of the redenomination was poor:
“The conditions for the redenomination of the Leones were obvious, but what was not obvious or better still missing to effect the redenomination of the Leone — ‘is the time’. The time at which the bank governor and the government decided to execute the redenomination of the country’s legal tender, at a time when the rest of the world is faced with economic constraints as a result of COVID-19, coupled with the Russian-Ukraine conflict, which has literally put the rest of the world to a standstill, is not ripe.”
Beyond that, the Economist has some opinions about the attempt to de-dollarize the economy:
“The conditions subsequent to the redenomination of the Leones, which include — the de-dollarization of the economy, the monetary policies introduced by the central bank and other policies initiated to monitor the circulation of the Leones by the bank governor, were obvious. To me, the redenomination of the Leones is hugely connected to Economic conditions and the feel-good situation. However, the redenomination of the Leone has not created any change in the country’s economy. Instead, the new Leone keeps depreciating considerably against the giant dollar in the past months after introducing the redenominated leone notes.”
The expert added that he is not expecting the redenomination of the Leones to change or boost the status of the Leones in a twinkle of an eye; however, he noted that the new Leones have to be given more time, like half a year or a year and beyond before it can start creating the necessary impact expected of it.
Why the continued depreciation of the Leones?
Jacob Kaindoh noted:
“The redenomination of the Leones is not the reason for the deterioration of the Leones, as I had heard from many people, including some businessmen. A major reason for the rapid depreciation of the Leones is that the country is not producing nor exporting goods to other countries that would bring dollars in the country’s economy.”
Exchange rate before & after the redenomination of the Leones
Investigations show that Sierra Leonean Leone has been ranked at the 7th position in the category of the seven weakest currencies in Africa. Hence, the exchange rate of the Leones to the Dollar since January 2020, more than 20 weeks subsequent to the redenomination, has been deplorable as the exchange rate of the Leone to a Dollar kept moving in-between Le10 to Le14 for $1. 15 weeks after the redenomination of the Leone, the exchange rate between the leone and the dollar keeps increasing exponentially — which according to the Bank of Sierra Leone exchange rate for Monday, December 5, 2022, — is exchanged at Le17660.6522 for $1.
Thus, the figures from the website of the country’s central bank show that Leone has been depreciating and continues to depreciate against the dollar before and after the redenomination of the currency.
In addition to the physical research conducted by DUBAWA, desktop research equally revealed that the Leone has fallen way below the dollar by 31.95 per cent before and by 39.05 per cent after the redenomination in July 2022, as evidenced here and here, respectively.
Also, the Trading Economics Currency disclosed that, in the past four weeks, the Sierra Leonean Leones fell by 7.45 per cent against the U.S dollar. It also added that the Leone has fallen by 39.52 per cent against the dollar in the past twelve months, adding that there is the possibility of the Leones continuing to depreciate against the dollar in the near future.
The Exchange Rates.org.uk indicated in its recent release regarding the exchange rate of the Leone to the dollar a vast disparity in the exchange rate of the U.S Dollar to the Sierra Leonean Leone as of November 16, 2022 — which is $1 equals to 17682.4835 leones.
What the expert said concerning the current status of the Leones
Jacob Kaindoh told DUBAWA that the current status of Leone is deplorable, to say the least. He said Leone is constrained mainly because of the unproductive status of the country. He underscored the country’s essence in producing goods for exportation abroad so that more dollars would flow into the country’s economy.
When asked if it was necessary for the redenomination since the new Leone has a similar value to the old Leone, he observed that the redenomination was essential because the country has to ensure that its currency is brought to the standards of other countries currencies. The main reason Leone is taking a significant trend below the dollar is due to the country’s low or no productivity level, he stated.
“Let me tell you this as an Economist: the Leones would continue to fall below its current form if the country fails to put modalities in place to produce goods and services for exportation. Therefore, the central bank should initiate the ‘policy of repatriation’ — which would certainly help to bolster the value of the Leones as against the dollars, and even other currencies in the world,” he espoused, further indicating that the country has a loose policy concerning the circulation of the Leone.
Asked what should be done to ameliorate the rapid fall of the Leone against the Dollar, the expert noted that the central bank needs to review the policies that have to deal with the circulation of the Leone, adding that some foreign business owners who change Leones to dollars with the aim of repatriation back to their countries have to be checkmated while the central bank must ensure that the policies that have to do with the circulation of the Leones are tighter.
He informed DUBAWA that for the Leone to appreciate as much or more than the dollar, the public and businessmen have to fight very hard to export goods abroad so that more dollars will come into the economy, stating further that big businessmen have to trade largely in Leones instead of Dollars. He also called on Sierra Leoneans in the diaspora to pump huge amounts of dollars into the economy by massively investing in the country instead of just keeping their monies in foreign banks while the country’s currency and economy keep deteriorating to its lowest ebb ever in the history of the nation’s currency.
What local businessmen told DUBAWA about the new Leone
Away from what the Economics expert said, DUBAWA also solicited the views of some businessmen in Freetown about the new leone.
Mary Dumbuya, a petty trader at Congo market, one of the popular business places in Western Area, Freetown, told DUBAWA the new Leone looks very beautiful. However, she noted that the new Leone has seemingly contributed to the increased depreciation against the dollar in the past weeks.
She added that the rapid depreciation is hugely affecting them as petty traders with limited resources to buy from those who deal in wholesale. She called on the government to put modalities in place for Leone to get more value so that prices of essential commodities would take a downward trend as the festive season draws near.
Another businessman also complained about the rising cost of commodities which he attributed to the redenomination.
What a black marketeer told DUBAWA regarding the redenomination
Picture of a man holding SL Leones – Image source: love money.leonesimages.com
A Blackmarketeer (someone who changes or converts dollars for Leones and vice-versa outside the bank or, better still, in the streets) – who prefers to remain anonymous told DUBAWA that the Leones have depreciated against the dollars in a very considerable manner.
He noted that the current exchange rate of the dollar is the highest he had experienced as a dollar buyer and seller for almost a decade now. He disclosed that they get little profit as compared to the profit they were making before the introduction of the new Leone notes.
“The introduction of the new Leones is a major reason for the fall of the Leones. Now, $100 is exchanged for 1,700,000 to 1,800,000 (One million, seven hundred thousand leones [1,700 / 1,800 Nles]), which is way too high for just a hundred dollar note, and the exchange rate is not constant as it goes up and down by day. The fluctuation of the exchange rate is seriously affecting our business,” he indicated and called on the government to put structures in place to address the problem.
What citizens said to DUBAWA about the redenomination of the Leones
Citizens, particularly drivers and traders, have shared similar sentiments about the redenomination.
Kanneh Mohammed, a commercial driver in Freetown, told DUBAWA nothing much has changed since the introduction of the new currency. His joy, however, is the introduction of a new leone note (20 Leones), which was not part of the country’s initial leone notes.
DUBAWA contacted the Assistant Director (Communications), Governor’s Office, Bank of Sierra Leone – Mr Beresford Taylor, to get the bank’s view about the depreciation of the New Leone against the Dollar, but he failed to respond.
Conclusion
DUBAWA’s findings indicate that the objectives for redenominating the currency are yet to be achieved. Even though the new Leone was introduced to reduce the vast disparity that existed between the old Leone and the dollar, views from businesspersons, traders, and even ordinary citizens about the introduction of the ‘new leone’ speak otherwise.
date of writing ges promotion examination