Editor’s Note: In the past 30 years, Sierra Leone has gone from a war torn region to a developing democracy trying to recover and grow. This series explores the issues affecting communities in the country today.
In addition to its difficulties achieving economic prosperity, recent tragedies such as the 11-year civil war, the outbreak of Ebola, and other societal challenges continue to plague Sierra Leonean society. Consistent issues with the leone, Sierra Leone’s national currency, have created detrimental buying inefficiencies that the government needs to address in order to strengthen and expand the economy.
In western culture, and particularly in the United States, the idea of using a currency other than the dollar to conduct business is a foreign concept. In many parts of the world, the American dollar is the standard business currency regardless of local currencies. Using foreign currencies to make large purchases is the norm.
Such is the case in Sierra Leone, where a preference for the stability of U.S. currency by the business community led to the dollarisation of its economy. As project manager at Media Matters for Women (MMW) Florence Sesay told me, the use of dollars to make purchases at most stores, other than supermarkets, was commonplace.
An unintended consequence of the prevalence of the dollar is that it has created a thriving black market for the exchange of U.S. dollars to leones. This black market has undermined the government’s ability to control the flow of currency and contributed to further devaluation against the dollar, prompting the government to announce a prohibition on conducting business in foreign currency in mid-August of this year, just a few days prior to my trip to Freetown.
Upon my arrival, I quickly realized why the black market has posed such a large problem for the government and economy. According to most exchange rates currently available, $1 is roughly equivalent to 9,670 leones. When I arrived at the airport just outside of Freetown, most legal exchange counters offered a slightly lower rate of $1 to 9,500 leones. However, if exchanged on the black market, the standard rate was as high as $1 to 10,000 leones.
The much more attractive black market exchange rates have contributed to the instability and unpredictability of the currency’s value, thereby decreasing consumer confidence and exacerbating its devaluation relative to the dollar. Daniel Hoffman, chair of the African studies department, illustrated how consumer confidence in the leone has been limited by a lack of trust in government since the civil war.
“The military was colluding with the rebels for years,” Hoffman said. “It is hard to have much faith in the institutions of the state if you feel like they are either broken or untrustworthy. In a situation like what Sierra Leone faced, 10 years of conflict just makes that kind of dynamic much worse.”
During my first few days in Sierra Leone, it became clear to me why foreign currencies like the dollar were the preferred method for conducting business. The largest bill issued by Sierra Leone’s central banks is worth 10,000 leones. This means that the largest bill available in the country for transactions is roughly equivalent to $1 using black market exchange rates.
The fact that the largest denomination of currency in the country has such little buying power has created serious inefficiencies that plague its economy.
For example, the maximum amount of money that can be withdrawn from an ATM is 400,000 leones, or $40. This means that if someone wanted to purchase a $200 air conditioning unit to protect the interior of their home from the harsh West African heat and humidity, they would have to withdraw the maximum amount from an ATM five times, as credit cards and credit card machines are not prevalent throughout most of the country. After purchasing the unit, they would then have to wait for the cashier to count all 200 bills to make sure they were all there.
The inefficiencies of this system inadvertently discourage consumption of high-value goods and increase the costs associated with conducting business, which ultimately hurts the Sierra Leonean economy. If the government of Sierra Leone hopes to encourage and expand the use of the leone throughout the country, it must address these inefficiencies and print larger denominations of it.
Reach columnist Nathan Sebree at email@example.com. Twitter: @lolkoling
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