The Governor of the Central Bank of South Sudan Dier Tong Ngor launched a new SSP 1000 note on Tuesday, February 9, adding more denomination to the country’s currency.
In a matter of days, if not months, most people will start using the new red banknote bearing semblance with SSP5; and emblazoned with the portrait of the founder of SPLM the late Dr John Garang.
But amidst the fanfare of injecting yet another banknote in circulation, questions linger on whether all the legal processes were adhered with besides the standard security requirements.
Another emerging concern is whether the move could rejuvenate the country’s economy that has been battered by conflicts and is solely depending on limping oil production.
For instance, just after the launch, youth activist Wani Michael questioned the process saying it was suspect and crucial legal procedures may have been bypassed.
The Bank of South Sudan Act, 2011, empowers the institution to work independently without receiving orders from the executive or any other authority. But Chapter V (42) of the Act states: ‘‘The bank in consultation with the minister [Finance] and approval of the Council of Ministers shall determine the denomination, measures, form, material, content, weights, designs and other features of banknotes and coins.’’
It is the compliance with this legal framework that people like Wani have expressed doubts.
‘‘…there was no reference made to the [Council of Ministers] memo or resolution of the council of ministers with the central bank to [start] circulating the 1000 denomination,’’ he told The City Review.
‘‘…we are still to hear from the Central Bank and from the Cabinet whether the decision…was sanctioned by the cabinet as required for under section 42,’’ he added.
Growing inflation
Governor Ngor said the decision was in compliance with international standards that require a revision of the denomination in 5 to 10 years to align it with the market demands. He then urged the media to join forces with the bank in yet to be rolled out sensitisation exercise for the public to be aware of the security features of the banknote.
And as it is, intensified campaign is yet to done to ensure that the note will not attract incidences of money laundering.
The governor also yet to issue a clarification on the number of SSP 1000 banknotes that are due for printing. This could help the institution to monitor the currency in circulation and also resultantly control the inflation rate.
As an instance, Economicshelp.org states as follows in its article titled ‘The problem with printing money’: ‘‘Printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy.
‘‘If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. In a simplified model, printing money will just cause inflation.’’
Inflation puzzle
While it appears like a mere move to condense the currency units and reduce its bulkiness, Governor Ngor defended the move as the sworn arsenal to revive the economy by giving the SSP a facelift against the dollar.
‘‘This new higher value denomination will only partially will only restore the dollar value of the SSP 10 in 2011, but high enough to reduce the deadweight loss and high transaction cost in making high value purchases in cash-based economy like South Sudan,’’ he argued.
But this assertion gathers the cloud of skepticism from people who believe that there is no scientific proof that an increase in denomination will translate into currency strength.
Wani said, ‘‘It does not solve our inflation issue because even our reserves seem to be reading negative. So how do you then talk about the reducing of inflation with introducing new currency?
These sentiments are shared by Dr. Abraham Maliet Mamer, the Secretary General, South Sudan Investment Authority, who believes that the move will just condense the currency and subject SSP5, SSP10 and SSP50 to extinction.
‘‘I do not see the merits of it and the solution to our current economic issues but for central bank is helping the circulation, they want to reduce the bulkiness of the money so this is nothing to do with us fixing the dollar rate or slowing down the crisis,’’ he told The City Review on phone.
He added that short term impact will batter the SSP even more.
‘‘…people will be running to go and buy dollars quickly because they want to get rid of these notes so that they can keep their money in dollar.’’
‘‘in the next few days, the dollar will go up because now people will think that this note [is reducing in value] so I better [cash in] dollars to get more notes.’’
For Prof Abraham Matoc, Vice-Chancellor of Dr. John Garang Memorial University in Jonglei state, the remedy lies in controlling the market and not introducing more hard cash.
“The government should fix the rate of exchange because we are still growing. There are few individuals who have some means of having a lot of money and controlling the market and the exchange rate is exactly governed by the U.S dollar and the U.S dollar is now taken as a commodity. It is not the medium of exchange any longer,’’ he told a local press.