The Liberian dollar and the U.S. dollar are the 2 legal currencies and are officially interchangeable (that is, the official exchange rate is L$1:US$1). However, it is not possible for the public to purchase U.S. dollars at this rate, and in 1999 the actual exchange rate stood at L$40:US$1. Huge volumes of capital flight (the movementof money out of the country) after the coup in 1980 caused the government to mint new coins to fill the resulting gap. In 1989, coins were replaced by notes, but due to the theft of notes from the banks during the civil war, the notes were replaced by the liberty dollar in 1992. This attempt to restore monetary stability was also designed to undermine the position of the rebel leaders, whose wealth was mainly in the old currency. Hence the liberty dollars were not allowed by the rebels in rebel territory, and old notes became illegal in government territory. During the 1997 election campaign, the successful candidate, Charles Taylor, announced that he wanted U.S. dollars to be the only currency
|Exchange rates: Liberia|
|Liberian dollars (L$) per US$1|
|Note: From 1940 until December 1997, rates were based on a fixed relationship with the US dollar; beginning in January 1998, rates are market determined.|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
in Liberia, but a commission in 1998 argued that a new family of notes and coins, which entered circulation in 2000, would allow the government to benefit, on the new issues, from seigniorage (the situation that occurs when increased amounts of new notes and coins are allowed to enter circulation, allowing the issuer to make a profit to the extent that the face value of the notes and coins is greater than their cost of production).
In October 1999 the ineffective National Bank of Liberia was replaced by the Central Bank of Liberia with Mr. Saleeby, the former finance minister, at its head. The Central Bank of Liberia is pledged to a tight monetary policy by limiting the supply of base money to cover replacement only, and will not lend to the government to monetize budget deficits (budget deficits are monetized when the central bank prints money to lend to the government to meet its budget deficit, sparking off an increase in inflation ). Inflation in 1999 averaged 4 percent, one of the best inflation performances in Africa.