In light of the current rise of the US dollar, it is essential to acknowledge the exceptional performance and leadership of the Central Bank of South Sudan Governor, Dr. Alic Garang. Despite the challenges, the governor has demonstrated a strong track record of managing monetary policies effectively and maintaining financial stability within the country. While expressing complete confidence in the governor’s capabilities, it is crucial to offer some opinions on addressing the current rise of the US dollar. In my advanced finance class, we were taught that when a currency experiences rapid depreciation, like the South Sudanese Pound (SSP) against the US dollar or any other strong currency, the central bank can employ several measures to stabilise the exchange rate. One of these measures is foreign exchange interventions. This means the central bank can intervene in the foreign exchange market by purchasing South Sudan Pounds (SSP) and selling USD. This move increases demand for SSP and reduces supply, which can help stabilise or strengthen the SSP against the USD. Another measure that can be employed is monetary policy tools. In this case, the central bank can adjust its economic policy to influence the money supply. By increasing interest rates, the central bank can encourage saving in SSP and discourage borrowing, which can help reduce demand for foreign currency and stabilise the exchange rate.
Furthermore, fiscal policy measures. Fiscal policy measures imply that reduce government spending or increase taxes to reduce budget deficits. The latter can help alleviate pressure on the SSP and restore confidence in the currency. Additionally, the central bank can increase the reserve requirements for commercial banks, directing them to hold a higher proportion of their deposits as reserves. This can reduce the amount of money available for lending, which can help control inflation and stabilise the exchange rate. Also, the central bank can peg the SSP to a stronger currency, such as the US dollar, by fixing its exchange rate. A currency peg is a measure in which a national government or central bank sets a fixed exchange rate for its currency with a foreign currency or several currencies with different weights. This measure requires sufficient foreign exchange reserves. It may also limit the central bank's ability to pursue independent monetary policy. Lastly, the government MUST make drastic reforms; in other words, it should address structural issues such as diversifying the economy, improving governance, and enhancing productivity in different sectors such as agriculture, etc.
These measures can strengthen the economy and restore confidence in the SSP, leading to a stable exchange rate in the longer term. The central bank must carefully assess the economic situation and implement appropriate policies in a coordinated manner to stabilise the exchange rate effectively. Additionally, transparency, credibility, and communication are crucial to maintaining confidence in the central bank's actions and fostering stability in the foreign exchange market.
By/ Amb. Dr. Santino Fardol, P.hD
