Changing Currency, Is It Substitution & Replacement or Policy & Economic Security24 July, 2011
Khartoum, (sudanow.info.sd)- A new currency has been put in circulation as of Sunday to replace the old pound which was a common denominator with south Sudan, declared independent on July the 9th.
The new currency which looks almost exactly the same as the old one, will be used concurrently with the old one and would be gradually replacing it, the governor of the Central bank, the Bank of the Sudan, Mohamed Khair Zubair said, on launching the process.
The various denominations of the currency have however been stripped of all marks related to southern Sudan. For example the 10 pound banknote has been stripped of the image of large-horned cow, a symbol for south Sudan's Bahar Gazal region, the secretary bird was equally removed along with all other symbol that denote the new South Sudan
Considered an important human invention, the monetary currency is a means for exchange, evaluation and comparison in relation to the values of commodities and services. It is also a reservoir of the value and instead of saving property in kind of different forms, it I easier to keep it in the form of cash, although the uncontrollable fluctuation lessens the importance of this saving function. The banknote currency was first invented by the Chinese about 2,000 years ago and was adopted by the western governments in mid-19th century so as to facilitate transactions.
The banknotes and coins used in the Arab countries and elsewhere are of a legal tender and are therefore used in transactions in a specific country while gold and the US dollar are sometimes referred to as a global currency and are therefore acceptable for repayment of foreign debts. And in order to overcome the balance of payment problems, many countries imposed restrictions on the volume of currency that could be taken abroad or brought into the country.
The colonial countries used to link their curries with those of their colonies and the first one to adopt this was Britain. The Arabs have come to know currencies since ancient times and in the pre-Islam they transacted in the Persian, Roman and Greek currencies in addition to gold and other precious metals. At present, each Arab country issues its own currency and determines its value by linking it with a specific main currency with a basket of different currencies selected by the authority of that country or be leave it in a floated value to be determined by the supply and demand factors.
The Freedom of Dealing in Foreign Exchange
The Arab countries vary in the extent of the freedom in transaction in the foreign exchange against their local currencies and in the extent of the control they impose on the foreign exchange; some countries impose little restrictions or no restrictions at all, while others are very rigid in the transactions. This I verified by examining the currency and policy of each country. The country’s economic situation, the volume of its foreign trade, the proceeds of its exports and its economic policies influence the extent of stability and fluctuation of its currency.
Special Drawing Rights
These Special Drawing Rights are issued by the International Monetary Fund (IMF) with a view to providing the liquidity world-wide and maintaining the rates of the currencies. They are sort of a unit of account in which the central banks and financial institutions carry out transactions. The value of this unit is based on a basket of 16 major currencies.
The Islamic Dinar
It is a unit issued by the Islamic Development Bank against which the Bank’s capital is evaluated. The Islamic Dinar is one of the Special Drawing Rights units and is used by the central banks and other financial institutions.
The Arabian Dinar
It is a unit of account that is issued by the Arab Monetary Fund and is used for evaluating its capital. The Arabian Dinar is equal to three units of the Special Drawing Rights and is used only by the central banks and other financial institutions.
Hereunder are the currency and history of each Arab country along with the transaction policies of each country in the foreign exchange:
The Sudan and the history of its currencies
The history of the currencies in the Sudan passed through several historic developments; the Egyptian currency prevailed in the Sudan until 1956, the country’s Independence, when the currency commission was formed. That Commission issued Sudanese banknotes to replace the Egyptian and English currencies. The new currency was covered by gold, foreign exchange (the Sterling pound) and government bonds. The Sudanese Currency Commission issued in 1057 a currency of the following denominations:
1) Ten pounds
2) Five pounds
3) One pound
4) Fifty piaster's
5) Twenty-five piaster's.
Those denominations were designed to depict the natural resources (fauna & flora).
In 1960 the Bank of Sudan was founded under the Bank of Sudan Act of 1959 as a central bank unto which all tasks of the Sudanese Currency Commission were placed. It is an independent corporate body given the sole right of issuing currency, both banknotes and coins, in addition to the right of storing and distributing currencies and destroying damaged ones and those which become unsuitable for circulation. It is also tasked with preparing studies needed to develop and improve performance.
Thee currencies were in circulation until 1970 and, for technical reasons, were changed in order to use modern technological methods of printing to prevent counterfeiting
In 1980 another change was made in which new banknotes, carrying the pictures of then President Jaafer Nimeiry, and a new 20-pound banknote was issued.
In 1985 a partial change was made under which the banknotes carrying Nimeiry’s picture were withdrawn.
Again in 1991 the currency was changed in order to control the liquidity outside the banking system and to introduce some modern technologies. At this point the Sudanese Dinar was introduced.
In 2002 the Bank of Sudan Act was issued, including Article 21 which stipulates that the Bank of Sudan is solely empowered to issue the currency and Article 22 which provides for:
a) Taking measures necessary for printing, minting, keeping and securing the banknotes and coins.
b) Issuing the banknotes and coins.
c) Cancelling and destroying the banknotes.
Article 23 describes the specifications, shapes and denominations of the banknotes and coins, while Article 25 deals with the legality, mandatory and acceptability of the currency in the transactions.
In 2006 and in accordance with Article 14, Item 9 of the Resource-sharing Protocol a decision was issued providing for changing the unit of the currency. This decision read as follows:
The Central Bank of Sudan is to develop a programme for issuing, during the transitional period, a new currency which, in its design, should depict the following main ideas:
1. The vision of peace
2. Unity in diversity
3. The Sudan civilization
4. The hopes and aspirations of the Sudanese people
5. The various natural resources
6. The industrial development
The design should avoid the following taboos:
1. The human faces
2. The religious symbol
3. Signals of war and conflict
4. Ethnic symbols.
The Central Bank of Sudan, in order to implement the decision, commenced with preparation, designing and printing processes for issuing the new currency (the Sudanese pound, SDG), bearing in mind all the directives of the Comprehensive Peace Agreement (CPA). The currency was issued in the following specifications:
One Sudanese pound = 100 Sudanese Dinars (1,000 old Sudanese pounds)
The Pound was divided into the following six denominations:
-One Sudanese pound = 100 Sudanese Dinars
-2 pounds = 200 dinars
-5 pounds = 500 dinars
-10 pounds = 1000 dinars
-20 pounds = 2000 dinars
-50 pounds = 5000 dinars
The coins were divided into the following five denominations:
-One piaster = one dinar
-5 piastres = 5 dinars
-10 piastres = 10 dinars
20 piastres = 20 dinars
50 piastres = 50 dinars
The Bank of Sudan managed to carry out the change in a proper way free of complications and according to plan and the mission was commended by the regional financing institutions.
The Secession & Currency:
Following the secession on July 9, the Government of South Sudan was faced with many tasks, including the printing of a new currency for the new state, a matter which made the officials in the Bank of Sudan decide on brining the second edition of the Sudanese pounds into circulation during current July.
The banking expert, Dr. Omar Mahjoub says currency is a tool for facilitating transactions; and the cash mass is assessed by the volume of the commodities and services of an economy, meaning “the value store”. Therefore, when there is a defect in the cash volume, either an increase or decrease, a recession will occur. And on this basis each country should present an adequate quantity of cash for its citizens. Currency is either convertible or inconvertible and it is appropriate for any country to present a legal tender currency for its citizens and should not present any other currency, Mahjoub said. He added that linking by the state of South Sudan of its currency with the Sudanese pound implies that the Southern pound is linked with the Sudanese pound. The proper measure is that the currency is provisionally circulated in one country for fear of confusion between the two currencies. The currency is changed in coordination between the two states, gradually and in transparency, without surprises and in a fair manner as the state of the south possesses quantities of cash that must be in coordination between the two countries, including advance notifications and setting dates for changing the currency and the manner in which the currency is to be exchanged. The pound currency is faced with an unknown fate in the coming period, he said.
For his part, economist ad financier Dr. Isam al-Zain indicated that changing the currency is carried out in the open and that a country which relinquishes the main currency which was in circulation is wise because it protects its economy against the economic decline indications connected with the national currency which was prevalent at the time, against the price hikes and against any processes of an increase or decrease in the currency and adversely reflects on the economic dealings during the first period. Whereas continuity of the currency in the Sudan exposes it to risks, aid Zain, adding that presentation of the cash in big quantities before the secession was proportionate to the number of the population (40 million). This was one of the main reasons for the price hikes and rates of exchange, said Dr. Zain, describing as insignificant the GoSS measure of linking its currency with the Sudanese pound, predicting that the measure was meant to determine the value of the southern currency. He said, however, that the measure is, in some way, fearsome during the transactions because he said there might be numerous and complicated alternatives if the Southern state has actually presented its currency for circulation of late.
For his part, central Bank of Sudan Governor Mohamed Khair al-Zubair said the Bank would present for circulation the second edition of the Sudanese pound and would gradually withdraw the first edition through the banks and changing points in outlying areas during a suitable period of time in which the people are able to change their money. He said the process may take two to three months.
Zubair said the presentation of the new currency for circulation was a precautionary measure taken to counteract a plan by south Sudan for issuing its own currency. He explained that the Bank of Sudan has taken this decision because it could not reach agreement with the southerners on handing back to Khartoum the Sudanese pounds presently being circulated in the south after issuing a new currency there. The Governor said the Sudanese pounds estimated about 2 billion pounds in the south would be of no value after the north has printed a new currency which will be presented for circulation during current July. He said the central bank has prepared a new edition of the pounds of different colors to ward off the risks of using the Sudanese currency which is currently being circulated in the south for purposes against the interests of the Sudanese economy. Zubair said the printing of the new Sudanese currency cost 40 million euro.
Advantages of the new currency:
The former Governor of the Bank of Sudan pointed out that the new currency has 10 security advantages, including an additional ribbon of variant colors, protruding water signs and an illuminative water sign in addition to a hidden shape, a silver intermittent string, protruding letters and different sizes. He noted that a single size of the banknote cuts down the printing cost but causes numerous problems related to counting the money on ordinary machines which cannot differentiate between the denominations. He said the new currency would be printed in different colors
The government was wise enough to reprint the old banknotes but changed the colors of each denomination. The government has thus saved hundreds of millions of euro that would have been spent for printing a new currency. It has only reinstalled the old plates in the machines, changed the inks and turned the machines to produce new banknotes of brilliant colors and in a very short period of time while the design and printing of a new currency would take a long time and much money.
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