The End of yet Another Dalasi Rate Blues

The association of licensed foreign exchange dealers in The Gambia are to meet on Saturday 23rd January 2016 in the aftermath of government’s, or better say, Gambian dictator Yahya Jammeh’s final bow down, not to mounting international pressures, but to the stubborn logic of the market. One can hit his head as hard as possible against reasoning and other rationalizations, but in the long run, one cannot forever flee some of the fundamental basics of the wisdom and common sense that go to make our current understanding of the national economy from the teachings of Adam Smith to Friedrich Hayek.

They have waited for eight months and one week and five days, struggling, using wits and the supportive understanding of many citizens but finally, the despot has come to his senses and what is right finally prevailed.  In fact, the forex dealers had seen what was worse than the May 4th 2015 presidential directive nearly two years earlier. Then all the licensed forex dealers were treated as criminals, all of a sudden.

On August 2013, all 56 registered forex bureau in the country had their licenses revoked with immediate effect by the country’s  autocrat, Yahya Jammeh who let it be known in a press statement  that “All licenses of foreign exchange bureaus issued by the Central Bank of the Gambia (CBG) has been declared null and void with immediate effect by the Government of the Gambia.”

The statement claimed that “the cancellation of the licenses has been necessitated by the failure of operators in the foreign exchange market to comply with the advice and warning given to them by the Government.” The so called “advices and warnings,” were nothing but rate setting directives, it was reliably learnt.

Then, it went on saying all forex bureaus that operated in the foreign exchange market, were to apply afresh for licenses. Mr. Yahya  Jammeh also declared that “no foreign exchange bureau is allowed to ship foreign exchange out of the country and that all foreign exchange transactions are to be done through banks and only after approval from the Central Bank. ”

The Gambian strongman also stressed that individuals traveling out of the country are required to declare the foreign currency they are travelling with, while pegging to USD$9000, the maximum limit of foreign currency “anybody is allowed” to travel with.

Along with these measures, Jammeh also forcefully downgraded the exchange rate of the United States Dollar to an exchange rate of D30 to D33 to US$1, previously from D37 to D38.

Already in the previous year, in December 2012, the IMF(International Monetary Fund had warned Jammeh of the negative consequences in the financial market posed by his “directives” regarding foreign currency rates.

In fact months earlier, the IMF’s Mission Chief, David Dunn, said a similar directive in October 2012 on the ban of the shipment of the dollar and the forceful reduction of the exchange rates at the time, had caused “uncertainty” in the foreign exchange market.

He urged the Central Bank to play its role as the institution mandated to regulate the financial market. But who, in that bank would dare sticking his neck out in a challenge to the blood-thirsty Gambia leader? In fact none among them thinks it is worth it, they all know he is one not to argue with and one who only experience can teach, if indeed he is teachable. Hence the cool but non-controversial reception of his 2015 adoption of the same method of dealing with the fall in the value of the dalasi.

Since 2014, the Gambian currency, the dalasi, continued to steadily lose value against all the major international currencies. The depreciation was partly the result of reduced foreign exchange receipts, according to both local and international opinion, coupled with strong demand owing in part to the high level of liquidity in the economy.

Groundnut production and marketing were neither here nor there; Ebola was scaring tourist away from the West African coast, so arrivals were down as well as tourism earnings; instead of practising austerity government was on its mad spending spree. With President Jammeh having the delusion of being an oil Sheikh and in control of oil wells rivalling Kuwait cutbacks on public expenditure became alien and unknown. Since 2014, the Gambian currency, the dalasi, had continued to steadily losing value against all the major international currencies.The depreciation was partly the result of reduced foreign exchange receipts, coupled with strong demand owing in part to the high level of liquidity in the economy.

We of the Kaironews however do not share this view that there was any reduced foreign exchange receipt at the time. The groundnut marketing season 2012/2013 was a record in terms of both tonnage price and receipts from the sale of groundnuts. That season also saw lots of exports of cashew nuts and timber brought in from Guinea Bissau and Southern Senegalese province of Casamance. So while IMF and World Bank economists might have been right in some of their take on the economy of the country at the time, they got some totally wrong, in our opinion. How much of the semi-clandestine mining and export of heavy sand minerals of elminite from the Sanyang mines does the IMF care to capture in its study?  If not much then perhaps the statements ought notbe so categorical. The dalasi was dwindling in value simply because the economy was in the doldrums. This because of bad economic policies presided over by an autocrat with an expansive kleptocratic project. Straightforwardly put, bad economic policies were wrecking the dalasi.

In order to curb its rapid depreciation, the Gambia government passed an immediate directive on Monday 4th May 2015 that “the US dollar cannot be changed for more than 35 to 40 dalasi to a dollar,” when the market exchange rate was D53 – D55 for 1 US dollar.A statement from the Office of the President in Banjul on that Monday said the Central Bank of The Gambia will set the rates of the Euro and Pound Sterling “immediately based on their real value”.One Euro and one Pound Sterling before this press release were selling around D56 and D75 respectively.

In the statement from Banjul, the State House apparently blamed the depreciation of the dalasi on currency hoarding and speculation, thus it threatened:“Anybody found hoarding foreign currency in order to cause the depreciation will be charged and tried under the Economic Crimes Act and the immediate amount hoarded will be confiscated.”

It warned that businessmen who are involved in foreign exchange speculation and hoarding should “desist immediately or face very drastic action”.

“Such notorious businessmen will have their businesses closed and if they are foreigners face immediate deportation,” the statement said.

Henceforth, no foreign exchange amounting to more than ten thousand dollars, euros and pound sterling can be taken out of The Gambia without approval from the Office of the President, the State House announced.

“Failure to do so, the money will be forfeited to the state with immediate effect,” the presidency said.

In order to effect the directives, the State House has immediately launched ‘Operation No Compromise’ once again.

Service heads are warned to carry the directives out to the letter “as any security personnel found wanting in the execution of ‘Operation No Compromise’ will regret being born.”

“‘Operation No Compromise’ is here to stay until currency speculators and hoarders and the illegal market are wiped out of the system,” the presidency threatened.

Now eight months, one week and a day later, on 12th January 2016, Office of the President,  State House in Banjul announced the return to a flexible currency exchange rate. According to the announcement removal of the restriction follows the “stabilisation of the exchange rate and the resultant positive impact on prices of goods and services.”

The statement added that, “The Government of The Gambia wishes to reiterate its commitment to the free market system and will continue to promote and encourage honest private sector participation and contribution of all sectors of the economy.”

The government cautioned actors in the economy to act responsibly and avoid speculation in the foreign exchange market, saying this will consolidate the positive gains registered in the economy in the past months.

“The government will not hesitate to use the full force of the law to deter individuals motivated by greed and selfishness from undermining the economy by engaging in unhealthy business practices such as hoarding of foreign currency and speculation,” the State House said.

The government explained that its earlier decision to intervene in the foreign currency market was meant to correct “certain distortions and market failures” that resulted in the continuous depreciation of the value of the dalasi against foreign currencies.

With the latest economic directive from Banjul, henceforth, the rates of foreign currencies to the dalasi will be determined by the forces of demand and supply.

The statement also said that government wishes to reiterate its commitment to the free market system and will continue to promote and encourage honest private sector participation and contribution of all sectors of the economy,” the government said in a statement aired over the state TV, GRTS.

The government cautioned actors in the economy to act responsibly and avoid speculation in the foreign exchange market, saying this will consolidate the positive gains registered in the economy in the past months.

“The government will not hesitate to use the full force of the law to deter individuals motivated by greed and selfishness from undermining the economy by engaging in unhealthy business practices such as hoarding of foreign currency and speculation,” the State House said.

The government explained that its earlier decision to intervene in the foreign currency market was meant to correct “certain distortions and market failures” that resulted in the continuous depreciation of the value of the dalasi against foreign currencies.

At the time of imposing the restriction, the government ordered that a US dollar should not be changed for more than D40 dalasi.At that time, the true market rate was D53 to D55 for 1 US dollar.

One Euro and one Pound Sterling were selling around D56 and D75 respectively .But the Office of the President, at the time, ordered the Central Bank to set the rates of the Euro and Pound Sterling “based on their real value”.The Central Bank significantly reduced the rates.

Since 2014, the dalasi has continued to steadily lose value against all the major international currencies.Experts said the depreciation was partly the result of reduced foreign exchange receipts, coupled with strong demand owing in part to the high level of liquidity in the economy.

With the latest economic directive from Banjul, henceforth, the rates of foreign currencies to the dalasi will be determined by the forces of demand and supply.

But a seasoned observer who wrote to the Kaironews stated: “Don’t mind them, this is just an end of one cycle, the next one is just around the corner. The dalasi will again plunge even deeper against all foreign currencies big or small. And Gambian dictator will interfere again without any prior notice to the Central Bank or the Ministry of Finance and Economic Affairs. The IMF or other international financial organizational organizations he will just ignore knowing his country is too small and insignificant to matter in the scheme of things. One collateral victim, he loves to punish is the Gambian émigré community, who in fact are the biggest looser any time Jammeh does such unwarranted interferences in currency rates settings. Those who regularly send remittances to families and friends in The Gambia pay for most of the damage done.

 

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