Effect of Foreign Exchange Reserves and Money Supply on Exchange Rate in South Sudan

Wuor Chuol Both

doi:10.37284/eajbe.3.1.353

Abstract

Since the establishment of the Central Bank of South Sudan in 2011, monetary policymakers have been changing their policy instruments over the years in an attempt to stabilise the country’s economy. This study investigated the effect of foreign exchange reserves and money supply on the exchange rate in South Sudan over the period 2012 to 2019. Empirical studies of the effect of foreign exchange reserves and money supply on the exchange rate are reviewed in both developed and developing countries. Annual data from the World Bank Economy Statistics Database was analysed using an advanced pivot table. The findings of this study indicate that a decrease in foreign exchange reserves causes a depreciation in the exchange rate. The results also confirm that an increase in money supply causes depreciation in the exchange rate. The findings are in line with the findings of all the empirical studies that are reviewed in this paper.

Highlights

Given the importance of economic growth in any country, the main focus of government policymakers and economists/monetary policymakers are to have fast and sustainable economic growth
The findings are in line with the findings of all the empirical studies that are reviewed in this paper
The graphical analysis results of this study reveal that a decrease in foreign exchange reserves causes depreciation in the exchange rate

Summary

INTRODUCTION

Given the importance of economic growth in any country, the main focus of government policymakers and economists/monetary policymakers are to have fast and sustainable economic growth. Until now, it has been regarded as a common practice in many countries globally for their central bank to hold a certain number of reserves in their foreign exchange. It has been regarded as a common practice in many countries globally for their central bank to hold a certain number of reserves in their foreign exchange These reserves are mostly held in United States (US) dollars since it is the most widely traded currency in the world (Kashif & Sridharan, 2015). Over the years the question of the right amount of foreign exchange reserves a country can hold to stabilise its economic variables has been an ongoing issue in monetary economics and central banking literature. The debate on the right size of the money supply to be released in an economy is ongoing

LITERATURE REVIEW

RESULTS AND DISCUSSIONS

CONCLUSION AND RECOMMENDATIONS