Why did Liberia Chop My Money??
I recently visited Monrovia, which in the words of P-Square, chopped my money. Food, accommodation, and transportation are much more expensive in Liberia than in any other West African country I have visited.
It’s true that Liberia is a post-conflict country full of UN staff, who, when not struggling to help Liberia maintain its stability and get on its feet, are probably struggling to find enough things in Liberia to spend their money on. But Liberia also differs from other countries in West Africa in that the U.S. dollar is used in parallel to the Liberian dollar. Is it possible that dollarization could also contribute to higher prices?
First, a couple of observations about money and prices in Liberia. The U.S. dollar and Liberian dollar are used interchangeably. There is no place that accepts only one. Generally, the U.S. dollars are used as large denomination bills, and the Liberian dollars are used in place of U.S. coins. (I didn’t see a single coin in Liberia.) Prices of imported goods in Liberian supermarkets are roughly the same as the dollar equivalent of prices of imported goods in Ghanaian supermarkets. Gas prices also seem to be similar, though a bit more expensive. It seems that the main difference in prices stems from differences in prices of services.
The fact that price differences are concentrated in services, or non-tradeables, makes me suspect that the high prices are in part due to dollarization, and here is why: in a non-dollarized economy, like Ghana, which uses the cedi, if the Ghanaian government pursues a loose monetary policy, the currency will depreciate relative to the U.S. dollar. This doesn’t affect the dollar price of imported goods—these are bought in dollars, so their price in Ghana cedis will just be inflated so that the equivalent price in dollars is unchanged. Other prices in the economy, however, are sticky. Employees have contracts with set wages, and people are used to paying a given price for hiring someone to sew a dress. As a result, the price of these non-tradeables stays constant in cedis, but becomes cheaper in dollar terms.
(Note about monetary policy transmission in West Africa: In West Africa, business and consumer loans are much scarcer. So loosening monetary policy doesn’t lead to cheaper credit very quickly. It does, however, mean that cedi funds are more readily available to banks than U.S. dollar funds, which puts pressure on the exchange rate. So monetary policy transmission through exchange rates is more important in countries like Ghana, and happens more quickly, relative to transmission through interest rate mechanisms, compared to countries where large portions of the population have access to credit.)
What this means is that Ghana, if has a trend of depreciating currency, can have low overall prices in dollar terms because, in dollar terms, prices for non-tradeables have fallen. Liberia, since it is dollarized, won’t see this effect. If Liberia prints more Liberian dollars, the exchange rate may change, with the value of the Liberian dollar declining, but prices in dollars will stay the same.
This does, of course, attribute a level difference to an effect that applies to differences in rates of change, and my observations regarding prices of goods and services are anecdotal (Liberia doesn’t have good CPI data.) If you have comments on the plausibility of the theory, please comment!
The project manager on my project is now assisting with a village savings and loan project, and told me some interesting things about working in Bawku, a region in Ghana where violence has broken out between two tribes, the Mamprusis and the Kussassis.
According to my colleague (a Ghanaian), in the first century, the Kussassis, who were traditionally farmers but not fighters, asked the Mamprusis, who were known as warriors, to come to move to their land. In exchange for protecting the area, so the Kussassis could farm in peace, the Mamprusis were given the chieftaincy in the region. The agreement has held for centuries, and in Ghana’s system of parallel democratic and traditional governments, the Mamprusis still hold the chieftaincy, although they are far outnumbered by the Kussassis. The democratically elected official for the region is Kussassi.
Several years ago, the Kussassis became unhappy with this arrangement, demanding the return of a Kussassi chief. Violence broke out between the tribes. Despite interventions by the central government, including curfews and prosecution of those perpetrating violence, the situation has remained tense. The Mamprusis control Bawku’s city center while the Kussassis control the surrounding land and villages, and members of the two tribes cannot safely visit the other’s territory, although visitors from other tribes or countries are safe.
This situation has posed difficulties for the IPA survey team in the region, as they are trying to collect data in both tribes’ territories. It is crucial that surveyors be hired locally, so they have knowledge of the area, culture, and languages. Since young men on motorcycles have been responsible for much of the violence, the Ghanaian government has recently banned all men in the region from traveling on motorcycles --the chief form of transportation for IPA surveyors.
Enter the ladies. IPA surveyors are overwhelmingly male, as it can be difficult to find women with top educational qualifications and a willingness to take on the physically demanding work. In Bawku, the project manager was successful in finding half a dozen qualified women with motorcycles to fill out the ranks of IPA surveyors in the region. Women are not subject to the ban, and can legally ride motorcycles to visit respondents. The team includes women of both ethnic groups, to enable IPA to work in both territories and with respondents of both tribes. The field manager, who will oversee the survey team in that region, is a women of mixed descent, half Mamprusi and half Kussassi, and can safely work in either tribe’s territory.
I wish the team the best, and hope that they will demonstrate both the ability of women to be exceptional surveyors and the possibility that people of these two tribes can work together toward common goals.
I have worked in economic policy and research in Washington, D.C. and Ghana. My husband and I recently moved to Guyana, where I am working for the Ministry of Finance. I like riding motorcycle, outdoor sports, foreign currencies, capybaras, and having opinions.