Currency Crisis in South Sudan: Contexts, Causes and Policy Options

Abstract

This study combines contextual framework, review of South Sudan elites’speculative policies and empirical evidence between July 2011 to December 2017to explain the causes of the exchange rate crisis in South Sudan. The study findselites' speculative policies and a surging money supply caused the depreciation ofthe exchange rate. The study argues that policymakers implemented unsustainablepolicies, and speculative regulations in the financial sector as conduits for the elitesto benefit through rent-seeking. Disabled by ineffective monetary and exchangerate transmission channels, the Bank of South Sudan signaled its inability to defendthe fixed exchange rate in November 2013 by devaluing the pound. Politics came inthe way, the devaluation was rescinded by parliament in December 2013. Thedevaluation was later implemented in December 2015 at a higher exchange ratewhen the Bank of South Sudan surrendered to defending a fixed exchange rateregime. South Sudan's macroeconomic environment is characterized byhyperinflation, depreciation and lack of political will to ensure good economicgovernance prevails. Resolving macroeconomic challenges of such magnitude,requires external policy and financial support for the Bank of South Sudan tocorrect the exchange rate and monetary policy challenges.