How a Revaluation Will Reduce the Cost of Living in Sierra Leone
By Mohamed A. Jalloh, USA
Editor’s Note: This article was first published on the pioneering Sierra Leone Discussions forum on Facebook on September 4, 2021.
As you have undoubtedly noticed, about 3 weeks ago, the Sierra Leone government of Pres. Julius Bio commendably signaled a nascent awareness of the dire problem with the Sierra Leone currency of which I have been alerting every president of SL for the past 42 years. Cf. “Devaluation: A Rich Man’s Cure” http://www.thepatrioticvanguard.com/devaluation-a-rich-man-s-cure?utm_source=ground.news&utm_medium=referral
In so doing, Mr. Bio seemed poised to become the first president of Sierra Leone to take appropriate action to reverse the ill-advised devaluation of Sierra Leone’s currency, the Leone, by Sierra Leone’s Pres. Siaka Stevens in 1979 which was instigated by the IMF, aided and abetted by the World Bank.
Remarkably, the IMF and the World Bank belatedly admitted in Accra, Ghana, in 2001, that the devaluation in Sierra Leone in 1979 and those in other African countries throughout the 1980s had been a “mistake.” See, https://www.google.com/amp/s/www.modernghana.com/amp/news/14077/world-bank-admits-mistakes-in-sap-implementation.html”
Tellingly, that very belated admission came 22 years after I had publicly warned the IMF, the World Bank, and Pres. Stevens that it would be a mistake to devalue the then stronger-than-the-dollar Leone. Yet, the Sierra Leone government took no action to correct its own mistake.
Furthermore, the Sierra Lepne government of Pres. Tejan Kabbah amazingly failed to act to correct Pres. Stevens’ mistake in devaluing the Leone even after our SALONEDiscussion Think Tank showed it a plan to reverse the devaluation in January 2007. See, “An Analysis of the DFID-EC Strategy for Sierra Leone” http://www.thepatrioticvanguard.com/an-analysis-of-the-dfid-ec-strategy-for-sierra-leone
So also did Pres. Kabbah’s successor, Pres. Ernest Koroma. In November 2007, Mr. Koroma refused and failed to implement our SALONEDiscussion’s step-by-step plan to reverse the 1979 devaluation through a revaluation of the Leone, even though Ghana had successfully implemented its own revaluation of its currency four months earlier in July 2007. Ghana had revalued its currency in order to reverse its own IMF-instigated devaluation in the 1970s. See, “A Plan to Alleviate Poverty in Sierra Leone” http://thepatrioticvanguard.com/a-plan-to-alleviate-poverty-in-sierra-leone
So, when Pres. Bio, acting through the Governor of the Bank of Sierra Leone, Dr. Kelfala Kallon, announced the first serious proposal to reform the Leone last month, many Sierra Leoneans were hopeful that they would soon be relieved of the needless burden of poverty inflicted upon them by every president of Sierra Leone in the last 42 years.
However, those hopes were soon dashed when, instead of announcing a revaluation of the Leone, the Bank Governor announced 3 weeks ago a mere redenomination of the Leone - “removing 3 zeros” from the Leone notes, as he strangely put it.
Accordingly, I was obliged to again publicly sound the alarm - as I did 42 years ago in regard to the ill-advised and totally inappropriate devaluation of the Leone - that the current Sierra Leone government is about to make a monumental mistake that could make the economy even worse and worsen the impoverishment of millions of Sierra Leoneans by confusing a meaningless redenomination for the requisite revaluation that Sierra Leone needs to alleviate the needless impoverishment of the millions of innocent Surrra Leoneans.
In particular, in an effort to help the Sierra Leone government of Pres. Bio avoid making a catastrophic mistake in implementing a redenominstion of the Leone instead of a revaluation of the Leone, I have written essays here detailing how revaluation works and how it will reduce poverty. I have also described what a redenomination is and why it will never alleviate poverty. Additionally, I have set forth how to implement a revaluation in Sierra Leone. I did so most recently in Part 1 of this series. In this Part 2, I will now proceed to summarize what a revaluation will do and what it will not do.
But first a brief recap of my argument that a mere redenomination is not what is needed in Sierra Leone at this crucial time. What is needed is a revaluation. Therefore, implementing a redenomination is focusing on the wrong problem - transaction costs involving carrying bags of Leone notes to execute everyday purchases of household items. Instead, the Sierra Leone government must focus on reducing the cost of living that has resulted in millions of Sierra Leoneans being unable to afford the basic necessities of life.
To reiterate, merely “removing 3 zeros” is not an economic policy.
Therefore a redenomination has no discernible economic purpose except in one - and only one - circumstance: When the redenomination is part of a carefully planned and finely coordinated series of actions that together constitute the economic policy referred to as a currency revaluation.
I will now end by illustrating what a revaluation is. Predictably, I will do so by excerpting a characteristically informed exchange of ideas on our SALONEDiscussion forum dated May 16, 2016:
[BEGIN EXCERPT from the the SALONEDiscussion archives dated May 16, 2016]
Re: [SALONEDiscussion] How The Current SL Govt. Fatally Stumbled From the Outset in 2007
Mr. [Redacted],
Thank you for your gracious clarification. In response to your latest question ("which of the two countries do you know earned more for its exports than the other under the time frame discussed"), it is not clear to me which time frame you refer to but historically, Ghana - the second largest exporter of cocoa in the world, with Ivory Coast being the largest exporter - earns far more money from its exports than Sierra Leone.
I am curious though, given your initial statement that your "question is in relation to the comparison of Ghana and Sierra Leone currencies," why your question is only about exports and not also about imports. Specifically, I expected your question to be about the relative value of imports and exports in each country (the balance of trade) - one of the fundamental factors that determine the value of a country’s currency in a free market for currencies.
The other factors are inflation, interest rates, public debt, balance of payments (the relative value of all foreign currency received from exports and other sources by a country and all foreign currency it pays outside the country for imports and other foreign obligations), and political stability and economic development.
In closing, kindly permit me to humbly offer the following crucial points in order to help promote a greater understanding of a revaluation in the context of Ghana and Sierra Leone, where necessary:
1. It would be a mistake to make inferences about the ability of a country to revalue its currency based only on the absolute value of its exports.
2. In the context of Sierra Leone and Ghana, a revaluation is a specific, limited remedy to correct an inappropriate devaluation of a country’s currency.
3. A revaluation, therefore, does NOT exempt the revalued currency from the effect of the economic factors cited above which usually determine the value of a currency in a free market for currencies.
4. Accordingly, a revaluation does NOT guarantee that the exchange rate resulting from the revaluation will remain fixed for any minimum time or forever.
I hope the above analysis sufficiently clarifies the concept of a revaluation in the context of this discussion of the economies of Sierra Leone and Ghana.
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