Who is remotely controlling the parallel market to exploit the dollar in South Sudan?
By Longar Mathiec Wol, Nairobi, Kenya
April 28, 2017 (SSB) — The forces of demand and supply has been some of the tools used to analyze the market in the world when it comes to foreign exchange and many others but that is not seems to be the case in the youngest nation in the world; the Republic of South Sudan. The forces of demand and supply dictate the market through increase and decrease. In this case, when the demand for hard currency increase the price for the hard currency increases and when the supply for the hard currency increases the price for the hard currency decreases drastically and vice versa.
But in south Sudan every season the high demand is toping, meaning there has been shortage since 2014, there has never been any increase of supply since the conflict broke out. That sound weird and doesn’t make sense. There must have been hug supply of hard currencies to the market but the problem is that the supply is being control by individuals who wholesale the hard currencies especially dollars and take them to the black market in order to individually benefit and control the market.
In anywhere in the world there are forexes being establish for the exchange of all currencies but in south Sudan you found money being piled on the streets of Juba. The most trusted institutions; the forexes institutions are in individual pockets. There are no formally registered forexes and if they exist they are being misused by the owners.
Because it seems almost all the forex bureaus are either own by the people working in central bank or the close relatives or friends which is and abuse of power or office. There is nothing wrong with them doing ethical business as citizens of south Sudan. They are eligible and they can do business but that business should not be in the expenses of the vulnerable citizens who are struggling to stay alive every day.
Why I think it is in the expenses of the citizens? Is because any increase of the dollars in the black market leads to the increase of the commodities in the market. That means the whole country’s economy is being driven by the black market owners. The parallel market seems to be the only option when you want hard currency, and with country which is heavily rely on hard currency to import commodities.
But with the lack of hard currencies it is impossible to bring in commodities and the prices of commodities shoot up or exorbitant in the market. The country is left without functioning exchange institutions where to get hard currency without going to the black market; since all the money that is supposed to be sell in the forexes is taken to the black market. Then, how do you expect the economy to continue functioning when the whole country is being control by the individuals.
What the government needs to know is that these individuals that control the foreign exchange market are agents of regime change. Yes, agent of regime change. What else do you think would be the feedback; because everything has results, whether positive or negative; but in this case expect the negative outcome. The frustration is getting high due to the hiking prices. What do you expect the citizens to do?
Do you expect them to die of hunger and they just keep quiet. Believe me or not that dream will never come true because this situation will trigger the mass demonstration, with this volatile political situation the regime change would be inevitable. Therefore, is better you deal with few people than waiting for the masses to deal with them. That situation will be exploit by the opposition and it will look ugly; it is time to act now.
When you look at the way exchange rate is rising and falling is completely abnormal. When the exchange rate of one currency against other rises and falls for more than 5% one day; it does not look normal. If you remember how the price drop last week from 23,000 pounds per 100 dollars to 17,000 pounds per 100 dollars which is approximate 26% decrease is abnormal. When it drop in high percent it will at the same time increase in high percent. That is an indication that someone somewhere is remoting controlling the market.
But, the question is; who is remote controlling the parallel market in south Sudan? That is the question we all need to answer. For me I think, the total reliability on parallel market has been exploited by individuals who remote control the parallel exchange market in South Sudan. Or could it be weak fiscal and monetary policies, the lack of regulations that has been exploited by opportunists?
May be is a part of the problem but is not the problem, the problem lies somewhere. The issues if is not look at and resolve properly will cause a very big problem. But who could be possible victim, both the government and the citizens, because the citizens will be teargas, arrest and possibly being shot; on the government side it might collapsed. There, it is a win win situation that no one want to see.
It still early and the government has to do everything possible to prevent this situation from exploding. That could be done by establishing the institutions; forex bureaus not just forex bureaus but well-regulated forex bureaus to stop the random leakage of the hard currency to the hands of the wrong people, outlaw the parallel market, open the refineries in the country because oil imports is taking a lot of our hard currencies more than anything else.
And also improve health care system so that not all the people go outside for treatment, improver the education system so that thousands of south Sudanese children studying outside return home, stabilize security and establish agriculture schemes to reduce the level of food shortage and food import dependency and etc. when those ones are done with many other strategies chances of eradicating this hiking prices and issues of dollars strengthening against pounds could easily be address.
Addressing the issues of inflation does not need to follow one direction. It has many dimensions that needs to be address simultaneously if we need to see change. Economic crisis has happened in many countries in many parts of the world but they have been managed through reform for example 2008 USA economic crisis, south Asia economic crisis between 1950s and 60s that lead to the world economic crisis. How do they manage those crises? They manage them through reestablishment of good policies. If they can manage why do we think we cannot manage our own problem? There is nothing impossible if the good strategies are put in place.
Regardless of whether the country has flexible exchange rate or fix exchange rates still the government has to intervene in foreign exchange market through currency intervention policy to keep the market in balance. The currency intervention should not be confused with fixed exchange rate. The different is that the fix exchange rate government dictate how much certain foreign currency should be exchanged with local currency regardless of the level of demand and supply.
While currency intervention is when the government balances so that there is no shortage or over supply of hard currency or foreign currency and vice versa. When the demand for foreign currencies increase the government will inject enough foreign currencies to encounter the high demand so that the level of flexibility margin should not have much different. But one thing to know in currency intervention system the government does not interfere with the price of currencies in the market. It main roles and objectives is to control inflation, maintain competitiveness and maintain financial stability.
The problem why the inflation has gone beyond control in south Sudan is because since the introduction of flexible exchange rate there was no mechanism put in place to monitor the market whether there is shortages or over supply. We think when it is flexible exchange rate then the market will regulate itself but there is nothing like that.
There is no market especially foreign exchange market that can work alone and you expect to work well. When there are loopholes the brokers in the name of arbitrageurs and speculation, though a big terms to use here; will corrupt the market by instilling the sense of shortages of the currency whether there is enough or little so that they take advantage of the situation to continue doing business.
Therefore, market freedom and market regulation are of two different things the government needs to know. There would be no currency stability without the strong government regulations. Reviving the forexes and central bank taking it roles to make sure that they money being given out to the forex bureaus are used well and for the benefit of the people and the country.
With all the transaction being done without documentation how could the government monitor the criminal who might be engage in money laundering activities. I am quite sure 50% or more of the currencies in circulation in the country is laundered money and we have no means of detecting or knowing it. The challenges we face today need serious intervention on all levels especially policies to tackle this problem.
The author, Longar Mathiec Wol, is a South Sudanese student at United States International University-Africa, Nairobi, Kenya, where he is pursuing Bachelor degree of Science in International Business Administration and Minoring in International Relations. He can be reached through email address: longarmaxiech@gmail.com.
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