Currency Crisis in South Sudan: Contexts, Causes and Policy Options

Abstract

This study combines contextual framework, review of South Sudan elites’
speculative policies and empirical evidence between July 2011 to December 2017
to explain the causes of the exchange rate crisis in South Sudan. The study finds
elites' speculative policies and a surging money supply caused the depreciation of
the exchange rate. The study argues that policymakers implemented unsustainable
policies, and speculative regulations in the financial sector as conduits for the elites
to benefit through rent-seeking. Disabled by ineffective monetary and exchange
rate transmission channels, the Bank of South Sudan signaled its inability to defend
the fixed exchange rate in November 2013 by devaluing the pound. Politics came in
the way, the devaluation was rescinded by parliament in December 2013. The
devaluation was later implemented in December 2015 at a higher exchange rate
when the Bank of South Sudan surrendered to defending a fixed exchange rate
regime. South Sudan's macroeconomic environment is characterized by
hyperinflation, depreciation and lack of political will to ensure good economic
governance prevails. Resolving macroeconomic challenges of such magnitude,
requires external policy and financial support for the Bank of South Sudan to
correct the exchange rate and monetary policy challenges.