A Commentary By Ranger
Central Bank Governor warned last year that the Bank would not be able to control inflation and devaluation of the Leone against the World’s major trading currency, the Dollar, if macroeconomic fundamentals remained the same.
Governor Kallon said this when he announced that the Bank will sell Dollars in a bid to stabilize the value of the Leone. As a classical economist, Governor Kallon knows that the basic dynamics of the subject rest on the principle of demand and supply. So the Bank Governor’s dilemma in controlling inflation rested on his knowledge that demand for the Dollar for various purposes far exceeds its supply (availability).
Thus, under the law of demand and supply, if the demand for Dollars continues to exceed supply, then what will happen to the value of the Leone?
So prediction by The Calabash that if the country’s macroeconomic fundamentals are not reordered to either increase the amount of Dollars to meet demand, or reduce the demand for it, then by the laws of demand and supply, more Leones will be used to buy fewer dollars. Of course, the effect of this on the prices of all imported goods and services would go up, as they are doing now.
The Economics textbooks state that there is no quick fix to the problem of a country earning less foreign exchange than the amount it uses to import.
This is why low income countries like Sierra Leone which have very little to export in terms of value will continue to experience deficit balance of trade, devaluation and rising costs of all goods and services – both imported and local.
©️The Calabash Newspaper