- The government of Sudan has ordered total abandonment of US dollars on local transactions
- Sudan is experiencing a hyperinflationary environment and currency instability
- This is a reactionary policy which is going to suffocate the economy further
Harare- Embattled war-ton North-eastern African country, South Sudan has banned the use of the American dollar (USD) and directed all transactions to be carried in local currency to bolster the South Sudanese Pound and reduce high traffic on the United States dollars.
This is however, a reactionary measure passed by the Sudanese government without weighing repercussions.
The Sudanese have been making a chunk of transactions in the United States dollars due to inflationary pressures and exchange rate volatilities courtesy of the fast-depreciating local currency.
As of 14th February 2023, the Sudanese Pound was trading at 565 on the formal market against the single greenback and due to a lack of confidence in the currency and loss of trust in the government policies, the currency is likely to slide further.
The similar measure was taken by the Zimbabwean government in 2019, however, with huge repercussions. The unpopular 2019 February directive caused massive shortages of foreign currency leading to shortages of fuel, and basic food commodities like cooking oil and wheat promoting the parallel market rate where the US dollar was obtained at inflated prices. The policy actually backfired as inflation peaked at an all-time high of 837.53% in July forcing President Mnangagwa to relegalise the use of the US dollar in 2020.
This is the same path the Sudanese government is going to encounter. The country is ravaged by the civil war, the economy is torn with economic fundamentals out of order and high inflationary pressures exacerbated by a decaying currency. Banning the use of the only stable trusted currency, capable of easing the way of conducting business and cushioning consumers is a grave miscalculation as it will promote parallel market activities.
Sudan is a huge producer of oil in the East African region but due to corruption and fees and obligations owed to oil firms, the 170 000 barrels produced per day means the country only earns a value of 50 000 barrels with large amounts going into advance payments and contractual obligations.
In 2022, Transparency International rated the country at 22 out of 100 in terms of corruption, far below Zimbabwe’s index.
The Sudanese Pound is neither backed by gold nor economic fundamentals hence, there is a need to build trust and confidence first before dumping the valuable US dollar.
To curtail the effects of behavioural economics on both macro and microeconomic levels, there is a need to instil stability first, which can be possible through using a value-keeping currency like the American dollar now before phasing it out.
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