Hoi Samuel Dut -The word “Leave issues of generals to the generals” first emerge in Napoleonic era of wars and conquest. Today as a nation, we can learn from that statement amidst our struggles as a country.
South Sudan economic crisis management committee is dominated more by generals than by economists and academic scholars. I have been monitoring their investigation and press statement since their inception and it continues to baffle me and beat my understanding.
The move to change our currency seems to me like a military tactic straight out of the art of the war by San zu but it’s not the currency that has the problem, it’s the government.
First and foremost and my fellow economists will attest to it, is that change of currency is not an economic remedy. Others will say it’s currency substitution which is not because what we did in 2011 when we changed from Sudan pounds to our own is exactly currency substitution and to understand the definition of currency Substitution is to define it and here it goes “Currency substitution is when a country uses a foreign currency in lieu of, or in addition to, their domestic currency, primarily due to the greater stability of that foreign currency.
Currency substitution is also known as dollarization when the U.S. dollar (USD) is the currency that is being used as a substitute” which means, we already have currency substitution because in the market we are using two currencies in USD and SSP.
Change of currency is not one of the measures to curb hyperinflation either in any given economy whether it’s develop or underdeveloped, large or small economies. Most of the theories put forward by famous economists such the classical economists, Keynesian theory, Marshall and so on are inapplicable to underdeveloped economies such as our own and does not include “Change of Currency”.
If change of currency was an economic remedy, Zimbabwe would have done it, Greece would have done it, Venezuela would have done it, Ukraine would have done it, Iran would have done it, Syria would have done it, Sierra Leone would have done, Cuba would have done it and certainly the whole world would have done during the Great Depression of 1939-45.
To come up with this unprecedented, unpopular and radical policy such has “Change of currency is not only a low blow to the government and indirect admission of “We can’t do this” which is what we are thinking but it further reveals that those who are tasked with steering economic recovery never understood what they are dealing with in the first place. They only want to impress the boss but in actual sense, they are soaking him in a pool of problems.
The primary problem that we are going to face should they go forward with it will be the volatility of SSP which will further adds to increase of prices in the market from luxurious goods to basics needs, which will results into scarcity and leads to more violent and conflict along the roads and in markets.
The second problem will the conversion rate between the new currency and the old. Since SSP is weak, it is likely that you might have so much in SSP but less in the new currency which will also results to prices increments in the market.
The third thing will be uncertainty in the market because inflation will still be there. There is no magic tricks in dealing with the economic depression.
The first thing the government can do is to allocate some money to Forex bureaus and commercial banks but with a catch. The government should set the lower bound which is the buying price from BOSS as fixed let say 10,000 SSP and the forex will have to compete base on how much they are going to sell.
Those with the lowest selling rate wins the allocation and in the next week, you do the same, without removing floating rate system which is the instigator of all these, BOSS should set the upper bound on the ceiling in a way that in black market $100 is equivalent to 15000 SSP which means it will float between 10-15000 because there is a ceiling and rapidly the exchange rate will fall and SSP will gain which will leads to price dropped in the market.
When that is achieved, the government should not get their foot off the pedal but to adopt protectionist policies to protect our farmers, and infant industries, this will bolster investors confidence to invest more in the country and that will lead to competition which is good for the economy because all factors of production will be active which will automatically leads to production of quality goods.
The government above all else should implement R-TGoNU which will bring political stability which will gives room for development of banking sector, roads, agriculture, tourism which will increase mobility.
But since the above policies are unlikely to be adopted and made happen especially in the short run, Should the government get their way, should they not be stopped by IMF and World Bank then they should adopt USD has the medium of exchange and legal tender as it but as the main currency in South Sudan and we follow in the foot steps of countries such as Commonwealth of Puerto Rico, Ecuador, Republic of El Salvador, Republic of Zimbabwe, Guam, US and British Virgin Islands.
Democratic Republic of Timor-Leste and American Samoa.
However, we have left issues of the generals to the generals, they should leave issues of the Economy to the Economists