Economist Critiques Central Bank of Sudan's New Currency Measure
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Loading... - OBUYA MUREITHI
- 18 Nov 2024
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The Central Bank of Sudan (CBoS) has announced the issuance of a new SDG1,000 banknote as part of its efforts to enhance security standards for banknotes and stabilize the economy amid ongoing conflict. However, economist El Hadi Habbani has criticized this measure as counterproductive, suggesting it may inadvertently encourage illegal currency trading.
The CBoS's decision comes in response to widespread plundering of banks and financial institutions, including the CBoS itself, since the outbreak of war between the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF) in April 2023. The plundering has led to a proliferation of banknotes of unknown origin, contributing to increased cash liquidity and negatively impacting price stability.
In previous months, the CBoS attempted to address banking disruptions caused by the conflict, including a return to the Total Instant Settlements System (Siraj). However, experts have expressed skepticism about the effectiveness of these measures. The RSF has been accused of engaging in foreign currency speculation, further complicating the financial landscape.
Habbani argues that the issuance of new banknotes is primarily aimed at reducing the wealth accumulated by the RSF, which has gained significant control over the hard currency market and banking operations. He notes that the RSF has plundered banks and printed large amounts of money, which now constitutes a significant portion of the currency in circulation.
The economist highlights that the Sudanese government is facing a liquidity deficit due to a dramatic decline in revenues since the war began. While the replacement of the SDG1,000 banknote may be a response to this deficit, Habbani believes it is not the main motivation behind the decision.
Habbani expresses doubt about the effectiveness of the new measure in controlling the cash flow that operates outside the CBoS's oversight. He points out that the banking sector is struggling with a lack of deposits and liquidity, and many banks are on the brink of bankruptcy. The circulation of counterfeit banknotes is rampant, and the public is aware of this but continues to use them for survival.
The RSF's dominance over cash transactions and their network of accounts within banks complicate the situation further. Habbani criticizes the CBoS for lacking effective tools to monitor counterfeit currency and for failing to enforce strict controls on cash circulation.
Habbani warns that the new currency measure could lead to a surge in illegal currency trading. He notes that if the CBoS imposes regulatory controls during the replacement of old banknotes, customers may refrain from exchanging their old notes, leading to further complications. Additionally, if the government ties the exchange of banknotes to the payment of overdue taxes, it could deter people from participating in the exchange process.
The economist predicts that the money mafia, which already controls liquidity and currency trading, will exploit the situation to their advantage. He believes that the decision will ultimately benefit the economic mafia, including the RSF and their affiliates, rather than addressing the underlying issues of counterfeiting and liquidity.
Regarding remittances from abroad, Habbani notes that Sudanese expatriates typically send money through banks or digital banking applications. However, due to the long-standing isolation of Sudanese banks, expatriates are increasingly relying on digital apps, which may expose their beneficiaries to currency traders who offer less than the real value of their money.
In conclusion, Habbani asserts that the new measure will create new economic problems rather than solve existing ones, ultimately encouraging illegal currency trade and further complicating Sudan's already fragile economic situation.
