Opinion: Why is the Dollar on a rise?
By Maker Chol Malok
Oct 21, 2020(Nyamilepedia) — In the last few days, government through its forces has been battling the economic collapse using manual fiscal policies such as fighting the dollar black marketers menacing them to close their businesses to pave the economic recovery. This abashed populaces within and out if, there are not modeled fiscal policies that the government can emulate to recover the economy on its brink. Surprisingly the dollar rate dropped from 1$: 740 SSP to 1$: 500SSP but the question of sustainability of that fiscal policy remains outstanding in the mind of the concerned individuals and institutions given the applied mechanism. It is a shame for a government that has people with brains to go manual as such. That strategy is just a smoke-screen.
What can the government do? Economist have structured some monetary theories and policies for use universally as long as their feasibility is examined fit for the context before applying them. It is not a bad idea cloning them if their applicability is tested. The applicability of any theory is conceived when the roots causes of what elicitseconomic meltdowns are determined.
We have been pondering a question about daily as the dollar price surprisingly keep hiking “why is the dollar on a rise?” One common answer that professionals and nonprofessionals alike have given in respond to the pendulum question is that there are a few dollars chasing the local currencies (SSP). In short, there are few dollars in circulation disproportionately tothe floating South Sudanese Pounds in the hands of the consumers. Why is that?
In fear of losing their acquisition through banking services with weak systems, most of the clients are hoarding money in their family saves and avoid banking services. The most remote areas in South Sudan do not have access to banking services and the few clients that have access have lost trust in the banking system. The clients that created accounts with banks get frustrated during transactions due to the high withdrawal rates and zero interest rate for those that opened saving accounts. As a result, one would not wish to deposit his money in a bank that restricts and charges high commission for withdrawal with zero interest on the principal. Due to this, it leaves a huge amount of pounds that will be floating in the economy in comparison to the dollars
The reprisal of conflict in every corner of South Sudan among others such as poor roads and telecommunication network has limited market activities. The local and international investors alike hesitate to invest in a country that will pose risk to their long hard-won acquisition. Consequently, there is a sluggish foreign exchange which excavate the gravity of the dollar deficit in the country.
Mere speculations like what the central bank governor did where he howled that the bank of South Sudan has run short of foreign exchange/bank reserve can cause a dollar rise. Why? People would exercise their purchasing power to hoard the few available dollars in the market with their house saving with an intention of monopolizing the market with discriminative dollar prices at a given time while others wanting to maintain the value of their money in dollars units. In that regard, there is high affinity for a dollar than South Sudanese Pounds hence increasing high demand for dollars which in turn raises the dollar price.
Of recent, South Sudan announced its intention of printing new bank notes, which is meant to resuscitate the economy that is on its abyss of collapse. What happens? The possessors of pounds scurry to the markets and buy dollars at alarming high rates to continue saving their money in their houses because their sources of income will be investigated once they exchange the lump sum in the banks. As a result, the dollars are exchanged and held tight to the saves; leaving an enormous of pounds in circulation.
South Sudan depend primarily on imports because it has frail production because of its backwardness in technology use, coupled with high illiteracy rate. The country lacks capital to set up the craved technology as well. This has lowered production activities such as agriculture, oil mining, and extraction of other valuable resources such as Arabic gum within, hence setting the country on its knees to take loans and grants every moment. The fact that it doesn’t export or export less limits create imbalance in the economy. The export has a large role in determining the current account deficit .The list is endless for the factors that set the economy of South Sudan on its brink of relapse.
What can the government do? The government should look at the long-term solutions such as: strengthening of the fiscal policies, strengthening systems of the financial institutions, creating government securities, subsidizing the agriculture boosting projects, quell the enraging conflict in every corridor of the country, increase the oil and other natural products exploration and extraction, fortify the local revenues generating activities, create market linkages and create employment opportunities by encouraging innovation and improve physical infrastructures for the youth. Setting bottleneck laws that discourage black market deals but promotes licensing for those that meet a minimal licensing criteria for the forex bureaus. Taking a short-term solutions that are meant to suddenly rejuvenate the economy but off the economic policies are not wise and sustainable hence set for regret in the nearer future.
The author is a concerned citizen of South Sudan and can be reached through email at email@example.com.
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