New banknotes and barriers to cryptocurrency adoption in Liberia

Liberia will begin releasing a new set of banknotes by next month December. The central bank is aiming to restore public confidence in the banking system and forestall a currency shortage that has occurred in the past three years during the festive season. The bank’s governor Aloysius Tarlue has acknowledged that printing new notes will have a limited effect on systemic weakness, and now the bank is pursuing digitisation. This refers to mobile money primarily. Cryptocurrencies are not featured in plans.  

Significance – Systemic gaps

Financial inclusion is low in Liberia. For instance, bank branches make up only 1% of formal access points and 60% of these branches are in the capital Monrovia alone. Only about one in five Liberians currently own a bank account, up from 18% a decade ago.[1] This slow growth rate is partly due to unstable leadership and weak governance at the central bank. The bank has had three executive governors since 2018 and scandals over the printing and mop-up of banknotes have deeply eroded faith in the banking system. A severe cash shortage in December 2020 highlighted this as bank deposits dried up and most people privately held their own reserves (See: Liberia president targets central bank reform ).

Current governor Tarlue was appointed by President George Weah in November 2019 to initiate reforms, and the central bank subsequently formed a four-year National Financial Inclusion Strategy. Like most regulators in the subregion, Central Bank of Liberia (CBL) plans include “cashless” economy ambitions with a focus on mobile money. But cryptocurrencies are not accommodated in the bank’s strategy to expand infrastructure and regulations for digital payments. In fact, in May this year the CBL warned a local cryptocurrency startup to stop activities on the basis that the startup was unregulated. The finance ministry is setting up mobile money accounts for the country’s 50,000 civil servants to receive salaries, and the bank wants to increase the percentage of inward international remittances paid into mobile wallets from zero to 25%. Those remittances are equivalent to about 26% of Liberia’s GDP.

For now, cryptocurrency adoption is negligible in Liberia. This is the case because of familiarity/knowledge locally, regulatory lacunae, low internet and mobile usage rates. And it exists despite gaps in Liberia’s extant banking system, trust in the local currency and the importance of remittances from Diaspora. Liberia’s post-conflict political risk situation also slows the drive toward alternatives. Afghanistan is one country with similar indices for literacy and internet access where there has recently been a spike in crypto usage, but unlike Afghanistan, Liberia has had broad political stability since 2003.

Outlook – Room for alternatives

Growth in cryptocurrency usage in Liberia will remain moderate in the medium-term while smart phone, internet penetration and other impediments coincide with its stable political environment. Authorities have prioritised mobile money to facilitate a transition to digital payments, but (a) there is still significant room for alternatives given the mixed impact of mobile money since substantive regulations were made in 2014, and (b) growth in mobile money usage will require innovations building trust. The number of accounts grew tenfold between then and 2018 as agents illicitly opened multiple wallets to earn more commissions. Meanwhile, active users reduced from 37% to 12% - indicating some dissatisfaction with the innovation.

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[1] National Financial Inclusion Strategy 2020-2024. Central Bank of Liberia.

Image credit: Henry Boulind

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