By Tabora Bojang
The Governor of the Cental Bank of the Gambia, Buah Saidy has been defending the controversial policy decision to stop commercial banks from paying in dollars and other foreign currencies. The measure, announced last month, caused consternation to the business community and concern among the public. Many foreign current account holders complained it will affect them while others fear it would encourage hoarding of the dollar.
But Governor Saidy told journalists yesterday that the policy was adopted because the CBG wants to restrict dollarization of the Gambian economy.
Dollarization occurs when a country begins to recognise the U.S dollar as a medium of exchange alongside its domestic currency. It normally occurs when domestic currency loses its usefulness as a medium of exchange for market transactions.
According to Governor Saidy, since the liberalisation of the market in 1986 the foreign exchange market has been left on its own and this has been perpetuating unscrupulous activities by some economic agents and money transfer organisations in the country, posing threats to the national economy.
Responding to questions at the Monetary Policy Committee meeting of the Central Bank yesterday, Governor Saidy declared that it is incumbent on any national financial and economic regulatory institution to intervene when there is a market failure. “So, what we are telling banks is that those who have foreign currency deposits for whatever reasons, if they want to finance transactions abroad or travel abroad, the banks [in Gambia] can send those monies there and when they get there, they will get their money. But if you want to do a transaction in this country you cannot withdraw dollar and use dollar here. Whether you are an individual, a business or an international organisation, if you are doing business here in The Gambia and the money you are withdrawing is to finance a transaction here, the legal tender is the dalasi and we are telling banks to pay them in dalasi because even when you withdraw the dollar or the Pound Sterling from your foreign currency account, you are going to use it here to buy rice or oil, meaning you are going to convert that money somewhere outside the banking system and those kinds of activities are what create problems for an economy. Therefore, we want to restrict and control that pressure dollarization. We are not restricting the use of foreign currency accounts but you can only withdraw it in dalasi,” the governor said.
He added that the CBG made the decision to avoid the country from getting ‘blacklisted.’ “So, we are also trying to control and to know who is getting money out of this country. Some people opened foreign currency accounts to store the value of their money, and that is currency substitution. Because when inflation is high the dalasi is no more attractive and businesses and individuals will start substituting dalasi and dalasi denominated assets, reducing that in their portfolio and go for foreign currency and foreign currency denominated assets. Among these are foreign currency deposits. As a regulator of the financial system, we monitor what is happening in the market. These monies are being shipped on behalf of third parties, you have to know for purposes of preventing money laundering and other financing of terrorism activities,” he said.
He also warned against the use of other currencies like CFA to conduct business transactions in the country, saying it is illegal.
“To buy goods in CFA is illegal because the legal tender in this country is the dalasi. We are not part of the CFA zone so any business doing that is going against the law. We understand that some landlords are asking for rent in Pounds, Euro or the Dollar and that is not acceptable and anybody asking for rent in these currencies is embarking on an illegal activity and we are issuing a statement for them to desist. We also understand some schools are asking for fees in dollars and we are going to verify this because we cannot allow it. It is going to have negative implications on our economy and as a regulator, we will not sit and watch until disaster hits,” Governor Saidy concluded.