Last week, the Central Bank of Sudan (CBoS) announced the issuance of a new banknote of SDG1,000 as part of its efforts to improve the security standards for banknotes and achieve economic stability, after many banks in Sudan have been plundered. According to economist El Hadi Habbani the measure is counterproductive.
The Central Bank referred in a press statement on November 9 to the widespread plundering of banks and financial institutions, including the CBoS itself and the Sudan Currency Printing Company in Khartoum 2023, since war broke out between the Sudanese Armed Forces (SAF) and Rapid Support Forces (RSF) in April that year.
The plundering "resulted in the spread of large quantities of banknotes of unknown origin and not conforming to technical specifications in the SDG1,000 and SDG500 denominations, which has led to a clear increase in the level of cash liquidity and a negative impact on the stability of the general price level," the bank said.
In June last year, the bank took measures to tackle the disruptions in banking services caused by the war, including a return to the Total Instant Settlements System (Siraj, but banking experts doubted the impact. A few months later, the General Intelligence Service (GIS) accused the RSF and members of the public of foreign currency speculation, and the CBoS limited bank transfers more than once, causing traders to despair.
Economic expert El Hadi Habbani believes that the main reason for the decision to issue new banknotes is to reduce the wealth of the RSF. "The de facto government in Port Sudan wants to significantly reduce the liquidity the RSF accumulated before and after the war," he told Radio Dabanga correspondent Suliman Siri yesterday.
"The RSF plundered banks in the capital and other cities they took control of, robbed traders and others of their cash savings, and printed huge amounts of money, especially large denominations, which represent no less than 25 per cent of the total currency in circulation," he explained.
"For years now, the RSF is dominating a large part of the hard currency market. They control a large percentage of bank transfers through the Bankak banking application. They possesse most of the cash in the country and have overtaken the trading process by using Bankak transfers as an additional source of liquidity.
'War traders'
"The government's liquidity deficit, due to the more than 85 per cent decline in its revenues since the war, could be one of the reasons for replacing the SDG1,000 banknote and cancelling the SDG500 note, but it cannot not be the major motive," the economist said.
"The de facto government does not care about inflation, recession, sovereignty of the national currency, safety of the banking system, or the people. It does not prioritise liquidity, nor does it care about the balance between the money supply and the volume of goods and services in the country.
"Following the outbreak of the conflict, the Sudanese authorities used the printing of extra money as a major source for financing the budget deficit and the war, in addition to revenues from the export of gold reserves, directly or through brokerage by influential war traders in illegal gold export operations," Habbani stated.
The Sudan Transparency and Policy Tracker recently warned that the Sudanese army is positioning itself to dominate the country's post-war economy.
Control
Habbani believes that the new measure will not succeed in reducing the nearly 90 per cent of the country's cash flow that is circulating in the country beyond the control of the Central Bank.
"Almost all the production and service sectors have been destroyed. Banks are complaining about the lack of deposits, a large liquidity deficit, and international and regional isolation. Even their reserves at the CBoS have become mere book balances, something of the past. They are threatened with bankruptcy, and their clients no longer have anything left to add to their bank accounts.
"Counterfeit banknotes are circulating in commercial and private exchanges. The people know that the banknotes are forged but need them in order to survive," he explained.
The RSF have the greatest control over cash money in the country. They also have a network of accounts within banks and trade currencies through various banking applications, most notably Bankak, the application of the Bank of Khartoum, Habbani added.
"The Central Bank does not have effective tools to monitor the circulation of counterfeit currency, and no bank customer is asked about the source of his deposits, regardless of the amount. Rather, those who deposit large sums are treated as important customers with financial solvency."
"It does not have strict control and supervisory tools, policies, and procedures to combat money laundering and terrorist financing, according to the accepted standards. There is also corruption within the CBoS, the banking system, and relevant government agencies. There is no control over the circulation of cash, deposit and trading operations, and exchange operations in sectors characterised by circulation of cash in large quantities, such as the land and real estate trading sector, and the gold, jewelry, and ornaments trading sector.
"In addition, there is a painful lack of oversight of high-risk bank accounts, such as those of executive, sovereign and parliamentary bodies, senior state and bank employees, senior army, intelligence, and security officers, diplomats, and RSF officers."
Mafia
The economist does not see "big challenges" for the banks in implementing the new measure. "Despite the difficulties the banks in Sudan are facing, including the displacement of huge numbers of bank employees inside and outside Sudan, they will be able to replace the old banknotes, in case the Central Bank provides them with the appropriate quantities of the new banknotes."
The economic expert, however, expects that the demand for the new banknotes will not be as large as the CBoS expects, "especially if it adheres to applying the usual regulatory controls during the replacement, which includes verification of the sources of the old banknotes offered to the bank. Either the customers refrain from exchanging their old bank notes or the banks keep the money frozen until its owner can provide the necessary documents to prove its legitimate sources.
"Another obstacle may appear if the Central Bank, in coordination with the Ministry of Finance, conditions the payment of accumulated overdue taxes for the exchange of the banknotes - which could also be a reason for the decision to renew the SDG1,000 banknote and cancellation of the SDG500 one.
"Furthermore, the CBoS announcement of its decision has warned currency traders and forgers. One the most important criteria for fighting corruption and counterfeiting is that it is done suddenly without prior notice. Or the process is carried out gradually, also without an announcement. When customers want to withdraw money, they receive new banknotes, and thus the process is carried out without much fuss.
"All in all, such measures are carried out under normal circumstances, and it would have been better to postpone this matter until the war has ended," he stated.
Habbani continued, "What is certainly expected to happen now is that the money mafia will replace the money it has in its possession through illegal means provided by the banks themselves.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
"The decision taken by the Central Bank will serve the interests of the economic mafia that controls liquidity, currency trading, and counterfeiting, headed by the RSF themselves with their various institutions and individuals affiliated or cooperating with them. Therefore, it is expected that if the de facto government in Port Sudan keeps to its decision, the bank vaults will be filled with huge quantities of counterfeit banknotes of unknown origin.
"The only victor in all of this is the economic mafia that controls the hard currency market, both warring parties, and their allies."
Remittances
Asked about money transfers from abroad, Habbani says, "Under normal circumstances, Sudanese expats would send money to their relatives in Sudan through branches of Sudanese banks abroad (if there would be any) or correspondent banks of Sudanese banks or commercial banks.
"However, Sudanese banks are internationally and regionally isolated for long years, with the exception of a short period during the government of Abdalla Hamdok [2019-2021], and thanks to digital banking applications, the expats are now sending financial support via these apps. Their beneficiaries in Sudan will now fall prey to currency traders who will accept their money at less than its real value to make profits - a scenario that will certainly happen.
"Thus, the new measure, instead of addressing the problem of counterfeiting and reducing RSF liquidity, will create a set of new economic problems and encourage illegal currency trade."
No response
Radio Dabanga has been unable to obtain a response from the CBoS, the Sudanese government, or the RSF regarding the contents of this analysis.
