By Longar Mathiec Wol, Juba, South Sudan
December 20, 2016 (SSB) — Exchange rate is the older term that exists since the end of World War II and maybe beyond that. So what does it means, it means conversion of one currency into another. Since the establishment of gold standard, the fixed exchange rate continue to dominate the world exchange rate till 1970s when the floating exchange rate took over as popular exchanged rate system. Regardless of its popularity fixed exchange rate continues to exist in different part of the world based on the government’s interest.
With different type of exchange rate that system, let say four type. My interest and concentration will only base on one which is the floating exchange rate and maybe touch a bit on fixed exchange rate system. Hence, floating exchange rate system is a system where the forces of demand and supply determine the exchange rate between the currencies, in other word is control by the government; while fixed exchange rate is when the government set the limit for the exchangeability between the currencies, in other word is control by the government.
Almost all the countries in one way or another adopted the fixed exchange rate system and later on change to floating exchange rate. But one of the question that linger in my minds is, why the countries adopt type of exchange rate system? The simple answer is, it is dictate by the situation. What do I mean by situation? For example county export and import situations, regardless of many other situation the mains are export and import.
After that situation, what inform countries to abolish certain exchange rate system and adopt the other? Some of the reasons that make the countries to adopt a certain exchange rate system and leave the other based on the following:
- Whether the country is industrialize or semi-industrialize ( level of export and import)
- Whether the country has the other source of hard currency income e.g oil, tourism etc. (different source of hard currency);
- Whether the country is stable ( attract investors);
- Whether they have strong financial policies that will guide the people involve in every day transaction (strong fiscal and monetary policies)
Among the above points south Sudan almost score zero except some argument might base on point two, other source of hard currency, the way we are proud of our oil.
So coming to the question, what inform us to float exchange rate system? When we actually don’t produce anything in the country that we can export to bring hard currency except oil but don’t forget that human needs are many and cannot be satisfied by oil revenue alone.
For me as a person it was too early for us to float our exchange rate system, but may be expert might know better. What I know the fixed exchange rate system is expensive to maintain but is better to maintain that expensive system that will keep the living standard of your people at good level then introducing the system that none of your people are benefiting out of it.
But what people never asked themselves is, who is the beneficiary of this floating exchange rate system in the country? When the country devalued the currency it means it wants to encourage export and discourage import. But that one can only be done by either industrialize or sem-industrilize because most of the essential commodities are produced locally. These essential commodities could be food stuffs and many other small thing that the citizens might need. But that is not the case for south Sudan we are just a consuming nation. We import everything
Since we import everything with floating exchange rate it means our local goods become cheap to the foreigners with hard currencies and expensive to the locals or south Sudan citizens who have no hard currencies. Because these foreigners will acquire a lot of south Sudanese pound by exchanging few dollars. Then when this person goes to market the goods become so cheap to him/her and he/she can buy a lot of goods with few money that means he/she is not spending much in south Sudan.
This floating exchange rate in south Sudan is mean to benefit the foreigners, not all the foreigners but those working with international organizations specifically those with good positions and some working with embassies. As you know that most of our citizens are most likely not given good positions because of experiences and mindset of illiteracy.
Let take an example assuming that some one working with international organization earning USD 5000 with current exchange rate 80 SSP per dollar, it mean that person is earning 400, 000 south Sudanese pound every months and that I assumed to be lower or middle paid staffs because other might be earning higher than that, let say USD 10,000 if you convert them into pounds. I leave you with that home work to do it yourself and see.
In the above example it means that if person stays in south Sudan then he/she is saving not less than 4000 and above USD every months because USD 1000 will satisfy most of his or her needs. Assuming that these organization don’t even rent. Most of their staffs are accommodate in their own guest houses.
Let me give you and other example assumed that the good phone in south Sudan sell at SSP 30,000, for the foreigner who live in south Sudan that phone can cost him/her USD 350 which is too cheap but for citizens who earn less than 3000 SSP every months you cannot dream of buying that phone. So who are we serving? our citizens or foreigners, but people should get me clear I am not blaming foreigners but to open the eyes of policy makers.
Another example I one time asked my friend to enquire for me the price of motor bike in the country. He told me Senke is between 50,000 to 60,000 SSP while others based on their quality range from 70,000 to 90,000 SSP. When I compare that price to one of our neighboring country I found out that motorbike in south Sudan is actually cheaper that that country. Because in south Sudan 50,000 to 60,000 is equivalent to USD 450 to 550 while in our neighboring country you need between USD 800 to 1000 to own motorbike not Yahamah or Honda but we are talking of Senke and Boxer.
Floating exchange rate is not bad but the time it was done is questionable. It is done in many countries to encourage export and discourage import as I mentioned but for us, we totally dependent we depend on import. Why did we do it? May be there is might be best explanation based on who you ask. But personally this mount to betrayal of our people because you cannot do something without making calculation of what would happened or we are doing it to please people who pressure us.
It could have been halted a bit till we figure out some of the services that took a lot of our hard currency so that our people can afford their medical abroad till we improve, our education, health and our agriculture system so that we able to produce enough food to our people and then maybe we leave it to float at later date. We did it in rush or based on pressure from outside but now the victims are the citizens of South Sudan.
In every mess there is victim and villain, the victims here are the innocent south Sudanese who work hard and at the end of the month they earn less than 50 dollars; while the villain here are people working with powerful organizations who go home with amount of dollars equivalent to millions of pounds at the end of the month and at the end of the day they spend less and live in comfortable life while south Sudanese are struggling to feeding the families.
The action without proper analysis is dangerous.
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