The rise and fall of sterling in Liberia, 1847–1943

Abstract

Recent research on exchange rate regime choice in developing countries has revealed that a range of factors, from weak fiscal institutions to high costs of borrowing in their own currencies, limits the range of options available to these countries. This article uses the case of Liberia to illustrate that new states in Africa during the gold standard era faced similar limitations, even in the absence of formal colonial rule. The rapid depreciation of the Liberian dollar in the nineteenth century led to the adoption of sterling as a medium of exchange and store of value. This initially made it easier for Liberia to service its sterling‐denominated debt and for Liberians to purchase imports from Britain. However, as economic relations with the US deepened during the twentieth century, instability in the pound–dollar exchange rate created serious dislocations in the Liberian economy, ultimately leading to the official adoption of the US dollar in 1943. The story of Liberia illustrates the long‐standing challenges of globalization for peripheral economies and suggests the need for a reassessment of the origins and impact of colonial monetary regimes.

A tale of paper and gold: The material history of money in South Africa

“…As the next section will discuss, the Zuid-Afrikaansche Republiek (ZAR) in the Transvaal faced similar fiscal challenges before the discovery of gold underpinned its financial development. In other parts of the continent, the newly independent state of Liberia also issued its own national currency, the Liberian dollar, a currency of paper notes unbacked by any real assets which depreciated as the Liberian government turned to the printing press during frequent periods of fiscal crisis (Gardner 2014).…”

Gatekeepers of financial power: from London to Lagos

“…However, none of Britain's colonies, no matter their degree of self-government, had their own central bank. 11 Colonial currency regimes promoted the metropole's interests at the expense of the colonies' devel-opment 12 by maintaining the gates of finance in London. As seen in South Africa, British colonialism was transformed into aggressive imperialism through the creation of a new power constellation conducive to the exploitation of gold and its transfer to London.…”

Colonialism or supersanctions: sovereignty and debt in West Africa, 1871–1914

“…Though their overall fiscal performance was often shaky, contingency financing from imperial institutions allowed all three to present a more positive picture to investors. Further, all three used sterling as the main currency for international trade and public finance, giving them de facto membership in the gold standard (Gardner 2014;Hopkins 1970).…”

“…While British West Africa (for purposes of international trade and government finance, at least) was in effect on the gold standard, Liberia's currency system was based on the unbacked Liberian dollar. The depreciation of Liberia's paper currency made it extremely difficult for the government to pay external obligations denominated in sterling (Gardner 2014).…”