Dear Fellow Gambians,

Our country requires fundamental economic changes.  The changes should be fundamental in the sense that the schools of thought must be revisited and restructured. One such fundamental change is to abolish the central banking system and replace it with a curreny board. Currency board, unlike a central bank, holds at least 100% foreign reserves against all the notes and coins it issues. . The currency board has no monetary policies; its job is to respond to the supply and demand forces of the forex market.

Currency board system has been in the Gambia until 1971.  The reasons given for its closing were not satisfactory, and the objectives given for the establishment of the central bank in 1971 have never been achieved. It was argued that currency boards did allow the policymakers a room to influnece the national employment and undertake development projects; that currency boards did trasmit external shocks directly into the domestic economy due to the nature of its foreign reserves and the exchange rate regime it had to adopt. These reasons are false, particularly in the Gambian case. Given the size of  our economy and the nature of its output generation, there is no policy that can prevent us from external shock. We also do not need a separate bank for the government; government can bank with the private banks. Thus no good reason was given for closing down the Gambia Currency Board.

Among the objectives given for the establishment of the central bank were pursuit of price stability, high employment and growth. It would also act as an economic adviser to the government and funtions as national bank that would conduct monetary policies to help channel government development and stabilization objectives into the economy. These objectives have never been achieved. The Gambia since 1971 has not realized proper macroeconomic stability -  prices have been rising, employment and income stagnant or falling. Independence and discipline were lost in the monetary policies.

The West African Currency Board, established in 1913, was the first typical currency board system. It enjoyed impressive stability and generally good macroeconomic performance. Ghana's  Nkrumah was the first to throw it away as Ghana got its independence in 1957 and established a central bank in 1958 by converting a government commercial bank to a central bank. Then Sirra Leone and Nigeria followed Ghana, as they too got their independnce. Meanwhile, Gambia maintained it, and it became The Gambia Currency Board even after the independence until 1971.

They threw away the currency out of so-called national pride and independence from the colonial legacies; the decision was not solidly founded on the eonomic reasoning. They claimed that with central banks they could manage the aggregate demand more effectively; actuallly they were managing imaginary aggregate demand created by inflationary money. They asked their commercial- turned central banks to create money demanded by themselves not by the real sector economy. This produced the stagflation -  high inflation with falling employment and output.

Countries that have maintained currency board systems, such as Singapore, Hong Kong and Brunei, have realized impressive economic performance. Today, economists are advocating the introduction of currency board system for transition economies in the eastern Europe.

Currency board system  does not serve the interests of IMF and World Bank, so they choose not to emphasize on them much more advocate it for developing countries.

The state of our economy requires us to change the school of thoght; that is, from demand management to output management. The best way to manage output is to let the economic agents work out solutions on their own. There is no need to interfere with the economy in order to manage the demand. Our demand management often leaks out due to the international trade predominance.

Bukhari Sillah

Deutschland