Currency Auctions Spur Controversial Stands Among Economists
13 June, 2021
The Bank of Sudan
KHARTOUM (Sudanow) – The ongoing dollar auctions being conducted by the central bank (The Bank of Sudan) have triggered lot discussions. The auctions are part of the Bank’s monitory policy aimed at controlling the continuous deterioration in the national currency’s rate of exchange. The Bank considers the stabilization of the national currency one of the prerequisites of economic stability.
The auctions began on 26 May when the central bank had the availability of big sums of foreign exchange purchased by the Sudanese banks from the public and from the Sudanese working abroad through a flexible rate of exchange.
The auction was first organized on a weekly basis, in each week a sum of $50 million was put for sale by importers of essential goods. Then it turned to be organized twice a week at the same fixed sum of $50 million.
The Auction Has Stopped the Rising Dollar Prices
Economist, Dr. Abubakr Altijani Alhaj said the auctions seek to provide the importers’ needs of foreign exchange to satisfy the market needs of basic commodities and production inputs. This is thought to ease demand for the dollar on the black market, and accordingly moderate its exchange rate against the national currency (the pound). As a consequence of this a stop occurred in the mounting dollar prices in the black market and then the dollar prices started to gradually drop.
Dr. Abubakr said the Bank of Sudan targets a reduction in the dollar price that could also reflect in a drop of the prices of commodities and services and accordingly boost the national currency’s rate of exchange, one of the prerequisites of economic stability, and also to encourage local and foreign investments. This would in turn increase the Gross Domestic Product (GDP) and increase economic growth, thus raising the country’s general revenue and its ability to spend on health, education and other services and enhance the quality of the citizens’ lives. In addition, an increase in investments would open new job opportunities that reduce the poverty and unemployment rates and effect a drop in crime rate.
“These auctions are a temporary solution taken to stabilize the price of the national currency until when the country receives foreign loans that help revive production in the different economic sectors to increase the value and volume of exports, reduce the deficit in the trade balance and the balance of payment, a matter that could eventually lead to a fixed price of the national currency, if no other variables may occur,” he said in conclusion.
Currency Auctions Are Among the Instruments of Economic Neocolonization!
Economist and university lecturer Luay Abdelmoneim says currency auctions are not within the monetary policies the countries would voluntarily opt for. They are pressures to undermine the economies of countries. They are a ready prescription of the IMF in exchange for (studying debt cancelation).
Reducing the effect of currency auctions can be attained through the increase of government revenue. But in a country like Sudan, which hasn’t enough oil, has low exports, has no external markets and big external contracts, the government will resort to increase the taxes, the customs and the services prices such as fuel and electricity. Thus the auctions are sure to affect the entire economy and negatively affect exports.
The Iraqi Commission of Integrity had in December 2019 disclosed the details of criminal investigations related to the dossier of currency auctions it is probing. It spoke about three ploys followed by government banks, including the use of individuals’ bank accounts without their knowledge, depositing sukuk (financial certificates( in other persons accounts who do not have reserves. In 2019 the Iraqi central bank sold $44 billion in hard currency in the central bank’s auction (currency sale window), most of which to cover the importation of goods and substances needed in the country, to fix the national currency (the Dinar) and stop inflation, according to a statement by the Iraqi central bank. But in fact the volume of Iraqi imports had reached $18 billion only, including $6 billion for which the Iraqis bought Iranian goods, while the rest was smuggled outside Iraq.
This decision is sure to put Sudan under the influence of foreign powers that can control the directions of imports and exports.
Getting out of this dilemma will be very difficult and can lead to murder crimes like what had happened in Iraq as a result of this policy. Iraq’s debts jumped up to more than $100 billion in an oil producing country that ranks second to Saudi Arabia in oil production and exportation.
Dr. Lua’y added that: The currency auction is no more than an instrument of the economic neocolonization. Through it the state’s foreign exchange revenues are put under control to prevent their utilization in the required development, in particular in the countries that have natural huge resources and a relative privilege in the production of certain commodities (gold and gum-Arabic in Sudan’s case for instance), and with the strategic aim of exhausting foreign currencies. The result will be an opting to tax and levy increases, a matter that reflects negatively on production, in turn sinking the country into debts.
It has no effect on the black (parallel) market of currencies which has its own separate auction and its opening price (which is the closing price declared by the central bank in the auction.)
Accordingly, the parallel market will continue to thrive and the national currency price will steadily go down, added to the depletion of the government’s dollar reserves.
He said there are many tactics to play foul and control the auctions:
1- Using accounts of other clients without their knowledge (dormant accounts)
2- Depositing cheques in other accounts (dormant accounts) to complete the auction sum (without the original clients knowledge).
3- Applying in the same name through more than one bank
4- Using several trade licenses which have no actual activity across the banks
5- Foreign banks which have branches in Sudan may lead to foreign intervention in the auctions.
6- Ruling parties may forward applications with their adherents names to control the auction and undermine their political rivals.
7- Unruly persons may use the auction dollar to buy unessential commodities to collect profit.
8- May lead to economic subordination to foreign finance, a matter Sudan had been suffering from since independence, as the auction money will be used to buy commodities from certain countries.
8- There is no guarantee that the 66 applicants (out of 137) who were allocated $16,159 million in the first auction had met the conditions 100%. It is difficult to monitor and follow up whether they had used some of the above mentioned tactics.
Currency Auctions should be Implemented within Strategic Plan
Dr. Mohammad Khair of Omdurman Islamic University said: The currency auction is a mechanism used by many countries to achieve the stability of the national currency in comparison with other currencies and to improve the trade balance by controlling the importation according to priority. But this mechanism requires the provision of a number of prerequisites, the most important the existence of an adequate sum of foreign exchange. Another important matter is the existence of competitive national facilities in the required supplies, in order to avoid a commodity gap in the markets and the productive sectors. The productive sectors, particularly the agricultural and industrial sectors, are most important for providing the banking system with foreign currencies through their exports.
However, Dr. Khair said, the Bank of Sudan should implement the auctions within an integrated monetary policy. He further called for a strategic plan to run the economy of the country, instead of the day-to-day decisions.
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