By Majok Deng
![Man (hands seen) holds sum of South Sudanese Pound in the black market in Juba [Photo by ELRHA]](https://i0.wp.com/www.sudanspost.com/wp-content/uploads/2020/09/South-Sudan-Cash-Transfer.jpg?resize=1024%2C597&quality=89&ssl=1)
As a matter of fact, the volatility we see in the currency market is never conditioned by any market sentiment but rather by manipulation of the market for individual’s benefit.
This is why I think the supervision department of the Central Bank now seems to be doing what it ought to do. The department ought to do more by making sure that market players such as forex bureaus and commercial banks play by the rules of the game.
Market dealers’ irrational exuberance justifies why the currency market has been very volatile despite substantial central bank intervention (CBI) via term deposit fertility and foreign exchange auctions.
This has made some people think that CBI is an ineffective policy tool, and so most economists have been unduly critical of BoSS’s auction of dollars to authorized forex bureaus and commercial banks despite its good intentions.
CBI is an unconventional monetary policy arsenal used to ration hard currency to business persons in order for them to import goods and services into the country, indirectly through authorized currency dealers. It is international best practice, especially for a central bank in a developing economy, to stem sharp movements in the currency market and make imported goods relatively cheap.
In developed countries, central banks do not always intervene in the foreign exchange market due to the fact that business people can source their foreign exchange needs from the currency market, which is not possible in South Sudan due to the following reasons:
Currencies like the SSP have moved in three stages, which include manipulation of currency via intervention, the interbank forex market, and pure convertibility. Obviously, the SSP is in the first stage. If you could look at the country’s balance of payments position, you would find that the country has run a huge current account deficit since 2019.
This is because export earnings fall short of financing import needs, and that requires the central bank to close such a gap through auction in order to prevent a sharp appreciation of dollars against the pound.
In the second stage, importers acquire foreign currencies via the interbank forex market, which is a market where commercial banks with excess dollars sell them to other commercial banks that experience a shortage of greenbacks.
Hence, a trader in need of dollars for importation should place an order with a commercial bank where his or her account is domiciled. In such jurisdictions, forex bureaus, not black marketers, have a legal duty to act as intermediaries between sellers and buyers of the greenback, especially in small-scale transactions. In those jurisdictions, the central bank sells local currencies in exchange for the greenback in order to build their reserve to a required standard.
For example, central banks in the East African community are required to have a reserve equivalent to 4.5 months of import cover.
But with the presence of black marketers who are supported by an invisible hand, South Sudan won’t reach this stage. The interbank forex market is impossible in a situation where public confidence in local currency is lost. According to the Bank of South Sudan, a staggering 77 percent of accounts have been denominated in dollars, so even commercial banks would be tempted to use dollars they purchase from the central bank to hedge their earnings against the SSP depreciation.
That is why I would suggest that the central bank stickler for supervision of the financial institution, especially the department of banking supervision, go and have a look at the books of these banks so they can identify the real beneficiaries of dollar auctioning by the central bank. For example, last year, a friend of mine went to a certain commercial bank where his account was domiciled in order to buy some dollars for his foreign trip.
But unfortunately, he was told that there are no dollars, especially after the said commercial bank received dollars from the central bank on the same day. So regulators ought to ensure that financial institutions are abiding by the rules of foreign exchange auctions.
The forex bureaus must start intermediating between the central bank and the business community, not between the central bank and black marketers, because a huge supply of dollars to the parallel market came from the forex bureaus. The forex bureaus should open their doors to the public.
There is old saying in economics that if you want to destroy a nation, ones could use helicopter to unload bundles of banknotes across the country and thereafter everyone would have money available in his /her hand to spend and cause currency to lose value which is enough to evoke public uprising.
In South Sudan, the enemies of the state or oppositions do not need to use helicopter money to unseat incumbent government. But they could influence black marketers on the side walk of Juba town, Custom, and Konyo Konyo to destroy the SSP and there you go-public dissatisfactions and revolt against the government.
Hence, I believed the war against black marketers is no longer prerogative of single institution but collective responsibility for every level of the government. As matter of fact, the legislatures have already done their part through foreign exchange business act of 2012 in which they illegalise parallel market.
According to section 7(1) of forex business act (2012), “No person, other than a bank licensed under the banking act, 2012, or a legal person licensed as a foreign exchange bureau under this act, shall engage in the foreign exchange business or in the business of international money transfers”.
The executive arm of government has a duty to enforce forex business act (2012) in a letter and spirit and therefore, judiciary shall be ready to try culprits.
The author is a South Sudanese economist, and can be reached via: majokthon2014@gmail.com.
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