Deregulating Dollar Exchange Rate a Positive Step
Deregulating the exchange rate of the Dollar by Central Bank of Sudan (SBS) stoke fears of economic experts who considered the step as one that will result in increasing prices and negatively affecting citizens, especially after the Dollar-Pound exchange rate in the parallel market exceeded 1.5.
Experts said that the policies of the government are in need of review and modification to enhance the Sudanese economy.
It is worth noting that CBS has –in a sudden move- agreed to deregulate the exchange rate of the Dollar with allowing Exchange Bureaus to set the exchange rate following a certain mechanism developed by the CBS. CBS and Sudan's Association of Foreign Exchange Bureaus have convened a meeting at an earlier time, a meeting in which new mechanisms were developed to be used by exchange bureaus in the period to come.
Combating the Parallel Market
Abd Almoneim Noor Aldin, deputy secretary general of Sudan's Association of Exchange Bureaus, said that the meeting discussed the new mechanisms to fight the activity of the parallel market, revealing that CBS has deregulated the exchange rate of foreign currency and allowed exchange bureaus to buy and sell foreign currency according to market price, in step aiming at limiting the activity of the parallel market and attract money transfers of expatriates in foreign currency through exchange bureaus.
Experts considered the step taken by CBS as an effort to eradicate the activity of the parallel market and attract money transfers in foreign currency from abroad, where CBS has declared that the application of the new exchange rate of the Dollar, a (4-9) rate for banks and (5-4) rate for exchange bureaus, these rates are designed to meet the needs of travel, hospitalization abroad, and study abroad. Exchange bureaus welcomed the step saying that it will cancel the need to deliver foreign currency at the airport. They also revealed that CBS has agreed to supply exchange bureaus with foreign currency at the rate of (5.8) pounds, and in turn exchange bureaus can sell to their clients at the rate of (5.2) to meet their clients' needs and attract expatriates money transfers in foreign currency from abroad.
There is no doubt that maintaining real and convenient exchange rates is considered a prerequisite for encouraging exports and localizing imports, and this procedure was applied by a number of countries in the eighties within a number of reforms aimed at deregulating exchange rates and encouraging money transfers in unlimited quantities, a procedure that is not allowed in many developing countries due to worries that their reserves would run out if they deregulated exchange rates. Recently, international monetary institutions confirmed the importance of deregulating exchange rates as an integral step to market liberalization, encouraging competition, and optimizing the use of resources.
The New CBS Step is ill-considered
Many experts think that the step taken by CBS will result in increasing price immensely, an opinion also adopted by Dr. Mohammed Alnayir who –in statement to Sudan Vision clarified that deregulating exchange rates and discontinuing the subsidization to fuel will have negative effects on economic situation in the country, referring the reasons behind those decisions to the misconception of these issues by the specialists, and he added: ''the same thing has happened upon the application of the market liberalization policies, policies that resulted in increasing prices hugely.'' He also said that the decision was ill-considered despite the fact that it will lead attracting foreign currency money transfers from abroad and provide foreign currency for hospitalization abroad and for travelling purposes, but it will also have negative effects on the prices of basic commodities and services, effects that are generated by misconception of policies. Alnayir added that CBS may have reserved the earlier rate of exchange to import wheat and food oils, but if CBS has not actually taken that measure, a real problem will arise manifesting itself in an unreasonable increase in commodity prices.
Supply and Demand
On the other hand, Hafiz Ismail, an economic expert, considered that this decision does not really affect the stability of the currency since there is a essential factor that sets exchange rates which is the difference in quantity between supply and demand. He added that the exchange rate is partly deregulated and the government must provide the balance that enables exchange. He said that the exchange rate will rise anew because the effect of this decision will be limited since it will not increase the price of the already available amounts of foreign currency.
It was noted that a number of the institutions whose operations involve foreign currency have welcomed the decision of CBS, saying that this step will contribute to efforts of limiting the activity of the parallel market by allowing clients to withdraw their funds in foreign currency in addition to the fact that the decision will attract foreign currency from abroad.
By Hana Abdel Hai, 27/05/2012