31/10/2019
*‼The Leone plunges to the US Dollar by 100%*
Sierra Leone’s currency, the Leone, has lost over 100 percent of its value to the US Dollar since 2016, according to Bank of Sierra Leone. The Bank noticed the general public in a press release dated 20 August, 2019 that it is illegal under the country’s laws to quote prices in foreign currencies. The law states that all prices in the domestic market have to be in Leones. However, Bank of Sierra Leone operates in a setting of weak law enforcement.
Therefore, section 26 (4) of the Bank of Sierra Leone Act, 2019 are largely violated. Large part of the economy is dollarized with impunity. The prices of renting a house, booking for hotel and flight ticket, renting a car, consulting fees, wages of foreign workers are among the economic activities largely quoted in US Dollars instead of the legal tender, the Leone.
However, illegal dollarization is not the only currency problems of Sierra Leone. Bank of Sierra Leone depends heavily on exports), especially exports of minerals, to build its foreign exchange reserves to be able to influence the exchange rate of the Leone in the international foreign exchange market. However, export of minerals is very volatile. The share of mineral exports fell from 90 percent in 2013 to 30 percent in 2018, according to latest figures from the National Advocacy Coalition on Extractives (NACE).
Even a booming natural resource sector in the early 2010s could not make the exchange rate appreciate; suggesting that the exchange rate in Sierra Leone depends little on capital inflows, including Foreign Direct Investment (FDI) in mineral extraction, in agriculture, in manufacturing, in construction and service, international aid, loans from lending institutions such as the World Bank and IMF, remittance etc.
It seems the real exchange rate is more depended on terms of trade (import and export) than capital inflows. The prices of exports including minerals, agriculture and manufacturing are fixed in