The Central Bank of Sudan’s New Currency Issuance and Its Implications
The Central Bank of Sudan (CBoS) has announced the introduction of a new SDG 2,000 banknote and a new SDG 500 banknote. This move has been described as reflecting “a dual and contradictory monetary policy” by financial analyst Ahmed Ben Omar, who spoke with Radio Dabanga.
In its official statement, the CBoS explained that the decision to issue these new notes is based on the provisions of the Central Bank of Sudan Law of 2002 and its subsequent amendments. According to the bank, the initiative aims to protect the national currency, stabilize its exchange rate, and contribute to achieving economic stability.
Contradictions in Monetary Policy
Ahmed Ben Omar highlighted that the incentives for issuing the 2,000-pound note began early and became apparent last October following the appointment of the new governor of the Central Bank, Amna Mirghani. He pointed out that the decision reflects a dual and contradictory monetary policy. On one hand, there is monetary expansion through increased currency printing to cover government obligations and finance the current deficit. On the other hand, there is administrative tightening aimed at controlling the parallel market and limiting cash circulation outside the banking system.
Ben Omar emphasized that this approach creates a contradiction between the objective of managing liquidity pressure and the goal of controlling the exchange rate. He noted that the absence of real money market tools such as open market operations exacerbates this conflict.
Rising Prices and Inflation
Ben Omar predicted that the introduction of the new denomination would increase the speed of cash circulation due to the ease of handling large denominations. This could lead to higher prices in the short term. Additionally, it may reduce the demand for small denominations, easing operational pressure on the monetary system.
However, he warned that the decision could raise public inflation expectations, which in turn could fuel inflation later. This makes the move more of an expansionary signal than a genuine monetary reform.
Regarding the impact on the exchange rate, Ben Omar stated that any new monetary issuance not tied to real production or foreign reserves increases the monetary mass, leading to negative pressure on the value of the Sudanese pound.
With the central bank no longer buying gold as a means of curbing excess liquidity, this monetary expansion becomes sterile, worsening its negative impact on the exchange rate.
Potential Positive Effects
If the Central Bank can effectively control the proceeds from the export of commodities like gold, sesame, and livestock, and supply them through official channels, there could be positive effects. This could boost reserves and support the stability of the pound by providing foreign currency within banks.
Ben Omar stressed that strict discipline in implementation is crucial. Any leakage of proceeds outside the banking system would undermine the effectiveness of monetary policy and keep the pound under constant pressure in the parallel market.
Devastating Losses
In an earlier interview, economist and former Minister of Finance Dr. Ibrahim El Badawi highlighted the devastating losses caused by the war in Sudan. He mentioned $200 billion in infrastructure damage, 40% of GDP destroyed in the first year of the war, and $6 billion in losses in Khartoum and its surroundings.
He also discussed the incompatibility of city forces and the need for easy solutions to address the duality of El Burhan and Hemedti. The only way out of Sudan’s existential crisis, according to him, is a comprehensive national charter.
Exchange Rate Fluctuations
Ben Omar reported that the exchange rate increase during May amounted to EGP 61, equivalent to 32% of the total increase since the beginning of the year, reaching EGP 193. He noted that the US Dollar exchange rate rose in the parallel market from 2,550 EGP to 2,743 EGP, an increase of 193 EGP (+7.57%). In the official market, the dollar rose from 2,001.91 EGP to 2,156.05 EGP, an increase of 154.14 EGP (+7.7% approx.).
He observed that the rate of increase between the official and parallel markets has converged, with the gap between the two prices continuing. He described the exchange rate rates in the first half of the year as stable compared to previous years. One dollar was worth about 580 Sudanese Pounds in mid-April 2023, just before the outbreak of the war, rising by over 472% in more than two years.
Economic Fragility
Ben Omar noted that the Bank of Sudan’s policy of limiting liquidity and reducing cash circulation has helped absorb internal speculation to some extent. However, he stressed that this did not prevent the rapid impact in the parallel market in the event of abnormal shocks directly related to military operations.
He explained that indicators show the market remains fragile, reacting more strongly to military events than economic data, but at a less volatile pace.
Broad Economic Downturn
The World Bank reported that Sudan’s economy contracted by an additional 13.5% in 2024, after shrinking by about a third the previous year. Extreme poverty is expected to cover 71% of the population as the conflict continues.
The bank attributed the significant deterioration of the Sudanese economy to the collapse of main productive sectors, especially agriculture. Productivity declined sharply due to disrupted trade routes, displaced farmers, destroyed agricultural infrastructure, and lack of access to finance.
Poverty rates jumped to 71% from 33% in 2022, and unemployment rates rose from 32% in 2022 to 47% in 2024, due to widespread business closures, economic uncertainty, and a sharp decline in stable job opportunities.