South Sudan bank stops dollar payments to fight black market trade

February 8, 2008 (JUBA) — The southern branch of Sudan’s central bank has said it will no longer provide commercial banks with U.S. dollars, seeking to reduce black market trade and avoid potential shortages.

The central bank was trying to stop landlords, businesses and non-governmental organizations from using dollars and to end black market trade in the greenback, Othom Rago Ajak, the bank’s foreign exchange director, said late on Thursday.

Customers including foreign businesses and international non-governmental organisations will only be able to transfer out and withdraw dollars if they are travelling abroad, he said. Otherwise all customers could only be paid in Sudanese pounds.

Sudan dollars, Ugandan and Kenyan shillings and Ethiopian Biir were all widely used in the south, now semi-autonomous under a 2005 peace deal, during a two-decade long civil war with the north.

“Now we have one currency circulated all over the Sudan. There is no reason to use dollars which can run out, that we are unable to supply,” Ajak said.

The timing of the order was partly due to a growing shortage of dollars after Khartoum’s decision last year to change dollar reserves to euro because of strengthened American sanctions over the continuing Darfur crisis, he said.

With little capital or foreign trade, southerners will be little affected but foreign business, used to accessing dollars in the south, may become more complicated, Managing Director of the south’s Ivory Bank, Ernest Woderif Marbaga, said.

But southern officials have little control of the economy and the order was unlikely to stop illegal dollar trading, he said.

“It will reduce the black market (but) the dollar will still operate, but at a higher rate,” he said.

Kenya Commercial Bank branch manager John Ndungo said because of large foreign influence the dollar is the main currency in the south but his bank has often faced shortages and has had to increase prices on the currency.

“That should stabilize because only people who are leaving will be asking for them,” he said. “It will make the currency more stable and increase the demand for pounds, eventually,” Ndungo said.

He said customers will now have to show air tickets or other proof of travel to be able to take out dollars.

South Sudan is exempt from the U.S. dollar ban in Sudan but southern central bank Deputy Kornelio Koriom said many foreign institutions still refuse to accept dollar transfers out of the south, seeing only that the payment is from Sudan.

He said the south could lose money on deals already agreed in dollars, including large development projects, if contractors refuse to accept euros and the government is forced to exchange large sums.

Around 2 million people died in the north-south conflict and a further 4 million were displaced. The peace deal allows for wealth and power sharing between the two sides and for a southern referendum on independence in 2011.

(Reuters)