Impacts of Foreign Exchange Rates on Savings in Sudan

Abstract

The present paper examines impacts of foreign exchange rates against the Sudanese currency on savings. The increasing rates of foreign currencies in the domestic Sudanese Black markets have simultaneously resulted in the continuous depreciated Sudanese currency values over the past year (2011-2012). Subsequent increases in commodities' prices and accelerated inflation rates. With the economic slowdown that started with the global financial crisis, the problem has evolved into rife stagflation. The black market became the de facto source of foreign currencies in the country with the diminishing ability of the government to provide considering her dwindling reserves. The Sudanese people' general response was to minimize their savings in national currency with heavy withdrawals from the financial institutions and buying, investing in real states, gold or foreign currencies. The latter, added to the demand on foreign currencies in the domestic market. Medium-term solutions are depicted in enticing FDI in the country and enhancing the productivity of the economic real sectors. However, instantaneous feasible solutions are to raise official foreign currencies exchanges or reducing them. The expected effects are to enhance savings and accelerate the already slowed economic activities in Sudan. The conducted econometric analysis confirmed that increasing the official rates of foreign currencies against national currency by one unit enhances savings by 2.7 units. The required total savings to enhance the financial institutions to finance domestic economic activities are estimated at 1.21 Billion dollars according to the econometric results. The coefficient of determination, R2 value was 0.75 which proves the model significance. The overall conclusion is that there is a negative correlation between foreign currencies exchange rates and the national currency, and savings rates in Sudan.