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The Role of the Central Bank
The Central Bank of Liberia (CBL) maintains the value of the domestic currency and external reserves, and pursues appropriate interest and exchange rate policies. The primary objective of the CBL is to maintain domestic price stability through maintaining exchange rate stability.

Exchange rate is the main variable the Bank can effectively target because most consumable goods are imported through the US dollar and the US dollar is a legal domestic tender. Prices of all goods and services are tied to the US dollar through the exchange rate.

Consequently, CBL uses key monetary mechanisms which include a system of liquidity monitoring, a forward-looking reserve requirement system, and a credit facility for commercial banks.

Interest Rate
As a secondary tool, the CBL pursues ‘prudent’ and market-driven interest rate policy to mobilize savings and optimize their allocations. Although the CBL has the formal authority to set interest rates, it relies mostly on exchange rate adjustment and the open capital flow system.

Banking Supervision
In addition to price stability, the CBL also plays a relatively hands-on banking supervisory role. It sets the minimum capital reserve requirement (US $6 million in 2008), drafts banking regulations, and manages
licenses, recently allowing three international banks to operate in Liberia. It also conducts on-site inspections, off-site reviews, all well as meetings with bank managers, boards, and principal shareholders. Furthermore, it works with banks on branch expansions to outside Monrovia.

Microfinance and Informal Finance
Microfinance plays an important role in Liberia’s economy.
A wide range of providers offer microfinance services, including commercial banks, private microfinance institutions, NGOs, credit unions, rotating savings and credit institutions, and other informal credit providers such as money changers; however, access is limited.

Most services are confined to Monrovia, and mostly provided by two NGOs, Local Enterprise Access Program (LEAP) and American Refugee Committee (ARC)/Liberty Finance. CBL estimates that the demand for microfinance services in Liberia is high.

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