Contributor's Opinion

Effects of Currency Devaluation and Peace In South Sudan

By Maulana Deng,

South Sudanese Pound, the new currency(Photo credites: P Ladu)
South Sudanese Pound, the new currency(Photo credites: P Ladu)

Feb 15, 2016(Nyamilepedia) —– Devaluation of currency is Changing country’s currency relatively to other currencies under the predominately of fixed exchange rate “dollar”. Whereas in floating exchange rate system, currency appreciation or depreciation result as changes in koyo-koyo market where dollars exchange was moving like Nile Water.

When South Sudan central Bank decided to devalues her currency { to floated} , interaction and match it with the market prices. Those policy and decisions weren’t debated or studied. Such actions were emotionally driven by the fact that the currency’s exchange rate in the market were indefensible to the Bank rate{ weren’t the same}. Although, this change was meant to sustain and a fixed exchange rate because the government a required the much needed dollar and to increases the sufficient foreign exchange reserves ( dollars) , to willingly spend, and to make the purchase foreign currency at the uncontrolled exchange rate. This deal was mistakenly and emotionally made because the country was unable or unwilling to stop the Dollar business.

When South Sudan central bank announced her a loosening and floating the dollar thinking it would leads to a quick response by the participants in the foreign exchange market. and auctioning of 50million Dollars. Nevertheless, did the selling the domestic currency in favor of other currencies. And nowhere did or will the domestic currency do well. Rather, than negatively affect the ordinary citizens South Sudan f and making them not afford basic food in market.

There is no doubt that devaluing a country’s currency has some implications of devaluation which are negative or positives. First, devaluation country’s currency often makes exports relatively less expensive for foreigners. Also, devaluation currency makes foreign products relatively more expensive for domestic consumers, which most of the times discourages imports. Mainly decreases the trade deficit and may increase trade competitiveness of the economy. The government of South Sudan should have use devaluation to boost aggregate demand in the economy, to bring peace and to fight corruptions, tribalism which are mostly affecting South Sudanese and are mostly linked and caused Dollar exchange rate to skycrocy within the country.

The government should have also studied the consumer and producer responsiveness to price and exchange rate (known as supply and demand elasticity’s), effects of devaluation that are aimed to reduce a nation’s imports and raise the demand of exports. First thing, should have been the Improvement the country’s balance of trade, increase in the new inflow of foreign currency such that it may help strengthen a country’s overall balance of payments account and needed dollar. As matter of fact the effect of a currency devaluation in South Sudan will depends on the actual elasticity’s of the supply and demand for traded goods., In this case the more elastic the demand for imports over the exports, the greater the effect of the devaluation will experience. Therefore balance of payments; the less elastic the demand, the greater the necessary devaluation could have be to eliminated. However, the devaluation of South Sudanese is something that will affected us for years and years to come.

This is because devaluation often is criticized as an inflationary monetary policy because it raises the domestic price of imports an could sometimes cause of inflation. Nonetheless, devaluation is an unpopular policy if it’s not properly study and , especially for country like South Sudan which extremely dependent on imports everything from country like Kenya, Uganda, Ethiopia and Khartoum government. This moved of floating dollar market prices was a big and unthinkable mistake.

As such, there will be a significant danger and increase of prices of imports and stimulate greater demand for domestic products, devaluation will aggravate inflation. I believe that there are 90 per chances of inflation to happen. Though, the government in other countries would choose to raise interest rates in order to control inflation, and to slower economic growth; such things are nowhere to be found in South Sudan. Also without achieving peace, eradication of tribalism and corruption in the country nothing will happen, Peace is paramount.

In other parts of world, devaluation of currency are made to psychological aids the economical growth due the experienced and substantial signs of economic weakness, and when creditworthiness of the nation that are in jeopardize. Devaluation may dampen investor confidence in the country’s economy and hurt the country’s ability to secure foreign investment. South Sudanese are and will the victim of their own misdeed lack of studying and knowing what to do at the right time. Peace will bless us once more than currency devaluation.

The author can be reached at deng.32@hotmail.com

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