Stephen Omiri, Chief Executive Officer of Eye Media speaks on Eye Radio's Dawn Show. May 19, 2023. | Photo: Awan Moses.

South Sudan’s pound currency is stunningly shooting up against the US dollar, trading at 3,900SSP per one dollar as of September 11, a sharp contrast from two weeks ago when one dollar was trading at 5,200SSP.

With this dramatic shift in the exchange rate, the pound which plummeted by 70 percent since January 2024, has now appreciated by 25 percent in just one week of actions from the Bank of South Sudan.

If you are a frequent follower of Eye Radio’s website and social media platforms, you may have read my opinion article titled “Stop the Pound (SSP) from losing value with these effective strategies.”

The number one strategy I urged the BoSS governor to consider is the withdrawal of 1,000 banknotes to discourage hoarding by very few influential people.

On Wednesday, the bank acted, increasing the number of 100 and 50 banknotes in circulation and temporarily hoarding 1,000 banknotes to monitor market behavior and reaction.

Even though it’s temporary, it gives the bank the opportunity to strategize well and consider a long-term strategy to stabilize the economy amidst other macroeconomic factors facing the country right now.

Therefore, if the bank manages to maintain the policy, boosting the issuance of lower denomination notes (100 SSP and 50 SSP) and decreasing the circulation of higher denomination notes (1000 SSP and 500 SSP) could lead to various benefits, such as enhanced economic liquidity and a decrease in hoarding and speculation.

The Central Bank’s action to increase the availability of smaller denominations could also improve economic liquidity, making it easier for consumers and businesses to conduct transactions, especially in a cash-based economy like South Sudan.

BoSS’s action makes it easier to enhance accessibility to smaller notes, which can facilitate everyday transactions, making it easier for people to buy goods and services without needing to break larger bills.

Furthermore, reducing the circulation of larger banknotes may discourage hoarding and speculative behavior, as individuals and businesses may find it less convenient to hold large amounts of cash in high denominations. This can lead to a more stable currency environment.

That said, a sustained limited supply of 1000 SSP banknotes, which are currently higher denomination banknotes, can have both short-term and long-term implications. For example, in the short term, the decision could lead to inflation control simply by limiting the availability of high-denomination banknotes.

Reducing the number of large banknotes in circulation can lessen the likelihood of sudden price hikes, as it could limit the quantity of cash available for expenditure. It might also signal to the market that the bank is taking steps to stabilize the currency, potentially increasing confidence among investors and consumers.

Strategically, the policy’s effective implementation and sustainability could result in improved yields, currency stability, and monetary policy effectiveness.

However, the SSP’s dramatic gain could have also caused losses to traders and large denomination hoarders. Changes in currency dynamics can lead to significant losses for genuine SSP traders. For example, traders who rely on high-denomination notes for transactions may face difficulties as their availability decreases. This can disrupt their business operations and lead to inefficiencies.

For now, traders may need to adjust their pricing strategies. If they have hoarded goods priced in SSP, they may find it difficult to sell at previous prices, leading to potential losses.

EDITOR’S NOTE: This article expresses the author’s viewpoints. Stephen Omiri is a PhD student in Strategic Management at the University of Nairobi. He is also a certified public accountant, holds an MBA in Business Administration, and has a wide understanding of macroeconomics theories. He can be reached at Obur.stephen2036@gmail.com.