For almost two weeks and counting, the South Sudanese Pounds have maintained its strength against the United States Dollars. While this development was celebrated from the onset, it is seemingly working to the disadvantage of the market.
The appreciation of SSP against the USD has been anticipated for far too long since the national currency started crumbling against foreign currencies, and in particular, the USD. It was for the better not for the worse.
However, the recent development has flipped the opposite side of the coin. The market remained resistant as evident by the unchanging prices of basic commodities thanks to lack of confidence from traders in the appreciation of the local currency.
By the end of April, the Government of Central Equatoria State called on traders to reduce prices of basic commodities with assistance from the Ministry of Trade. The traders agree to reduce prices. But not so much has changed. Businessmen are still holding on to their scepticism.
Of course, ordering traders to reduce prices without assessing the likely negative impact this will have on their business is unwise.
As of last week, a volatile phenomenon burned through the money exchange corridor. The South Sudanese Pounds blacked out of the market. Major licensed forex dealers who spoke to City Review feigned worrying shortage of SSP.
“We don’t know have SSP anymore, it has been two days since we ran out of the local currency. It is unclear to us what’s happening in the market,” a forex dealer who turned out a client wanting to exchange 50 USD to SSP anonymously said.
With confidence further eroding, traders and forex dealers alike say the cheapening of the USD has resulted into citizens, especially those with financial muscles, to hoard SSP and release it when the market needs it the most.
Consequently, the exchange rate will shoot through the roof as SSP gets released to the market in piecemeal amid high demands, sending prices of basic commodities will go haywire. For a person who has ever wondered why traders are sceptical, there can arguably be no better answer.
The injection of USD into the market by the Central Bank was a wise idea. But in a free market economy unregulated by proper policy framework, business cartels pull trigger of the exchange rate at will.
And if there’s one more question one may ask, it’s whether the Central Bank has sufficient reserve currency.
A reserve currency is a large quantity of currency maintained by a national central bank and other major financial institutions to be used for investments, transactions, meeting international debt obligations, and influence the domestic exchange rate.
It’s a public secret that the Central Bank went bankrupt in August 2020. While the coronavirus pandemic was blamed for the bankruptcy, what happened to the existed reserve was never made known to the public.
But as the impact of the pandemic wanes, the sales of oil, the country’s major export, picked up. No concerns over the scarcity of reserve have been raised, especially from the beginning of this year.
Yet, the economy still seems to be controlled by a few power group of individuals who release SSP and USD into the market and vice versa as they please.
The recent Auditor General’s report shows the misappropriation of the 2% and 3% of the Net Oil Revenue meant for oil-producing communities, States, and Administrative Areas. But that’s just a hint on how money allocated for things like fixed exchange rate stabilization could be used.
There’s no reason as to why the exchange rate remains volatile if the government through the Central Bank has a sufficient reserve to establish and maintain fixed exchange rate.