Economists have warned that introduction of the new 500 banknote by the bank of South Sudan could worsen the inflation and encourage hoarding of money.
Speaking to Juba Monitor in an interview yesterday, the Dean of College of Social and Economic Studies at the University of Juba Prof. Marial Awou Yol said printing a big note is dangerous because it would encourage business people and the entire citizens to increase prices for their commodities.
“People will keep their money in the houses because it is portable to carry. It will also be convenient for them. At the same time would cause inflation,” professor Marial said.
This came days after the Bank of South Sudan announced it will introduce new South Sudanese Pounds 500 banknote. The introduction of new SSP 500 banknote was probably aimed by the new central bank governor, Dier Tong Ngor to help reduce the amount of currency people carry and fight the hyperinflation in the country.
Currently the largest note in circulation is a 100 pound bill. The South Sudanese Pounds has lost more than half its value against the dollar since December 2016 in the black market.
In March, year-on-year inflation stood at 161.20 percent, according to the National Bureau of Statistics. It has averaged 89 percent over the past 10 years, racing to a peak of 835.70 percent in October 2016.
The local currency is currently trading at 139 SSP for one U.S. dollar at the official bank rate and 320 SSP for one dollar in the black market.
Professor Marial said big note of money always encourage citizens to demand for more money while the small notes will be of no use since the prices in the market keep increasing.
“If people have huge millions of small notes in their houses, it will encourage them to take it to the bank because they fear to keep it at home and that encourage circulation of money as needed,” the professor noted.
According to Marial, the Central Bank should be independent in order to make right economic decisions and it should not be interfered with by the executive.
“Changes of the leadership in Central bank show that it is not independent. The Bank is supposed to be free to make its decision so that people don’t panic,” the economist added.
Professor Marial appealed to the government to do something on the ailing economy because it is affecting everybody in the country.
“Citizens need to be supported. I have never seen salary policy in this country,” he said.
Meanwhile an economics student of University of Juba, Mr. James Okumu said that printing big banknote was not a solution to the economy.
“It would worsen the situation because the country only gets revenues from Crude oil,” Mr. Okumu said.
South Sudan depends on oil revenue for 98 percent of its budget, but production decreased significantly due to civil war that erupted in December 2013, causing most oilfields in the country’s oil-rich northern region to shut down.
This led to fall in production to less than 130,000 barrels per day (bpd) from 350,000 bpd in 2011.
“Our country is not like others because the economic crisis comes when there is war and at the same time we don’t produce and there is famine in the country,” the economics student added.
Mr. Solomon Wani Jada, a businessman in Konyo-Konyo stated that Central Bank was looking for ways to remove small banknotes like SSP 5 and SSP 10 from circulation.
“This time we are keeping only one hundred banknotes because it is portable. You see what has happened to One South Sudanese Pounds? It is not there now. It is the same thing going to happen to other small banknotes when SSP 500 is introduced,” Jada said.
Inflation is a general increment in prices and fall in the purchasing value of money while “hording” is a behavior where people accumulate money secretly without using banking institutions.