Modernizing Sudan’s Monetary Policy Framework

1. Modernizing Sudan’s Monetary Policy Framework By Ghiath Shabsigh Middle East and Central Asia Department International Monetary Fund e-mail: gshabsigh@imf.org

2. Monetary Policy • Exists because of fiat money • Refers to central bank (as the monopoly issuer of fiat money) management of high-power monetary emissions through adjustments in its balance sheet • Aims at achieving a strategic objective (e.g., low inflation) and stabilizing financial markets

3. The Monetary Policy Framework - 1

4. The Monetary Policy Framework - 2

5. The Monetary Policy Framework - 3

6. Balance Sheet of the Central Bank AssetsLiabilities ∆ Net foreign assets ∆ Currency ∆ Net lending to the government ∆ Bank reserves ∆ Net lending to banks ∆ Other net assets

7. Central Bank Liquidity Management • “Autonomous” liquidity position = ∆ Net foreign assets (+) ∆ Net lending to the government (+) ∆ Other net assets (+) ∆ Currency (−) • ∆ Bank reserves (s) = Autonomous liquidity position + ∆ Net policy position • ∆ Net liquidity position = Autonomous liquidity position – ∆ Bank reserves (d)

8. Type of facility 1. Overdraft window. 2. Lender-of-last resort window. 3. General financing window. 4. Market operations (OMO, Repo, interbank). Purpose of facility 1. Support the payments system. 2. Support the soundness of the banking system. 3. Provide general-purpose financing to the economy. 4. Quick intervention to influence money and foreign exchange markets. Basic Central Banking Facilities

9. Sudan: Summary Monetary Policy framework -1

10. Sudan: Summary Monetary Policy framework - 2

11. Sudan: Summary Monetary Policy framework - 3

12. Broad Money GrowthJanuary 1993 - October 2004

13. Average 12-month CPI inflation January 1992-December 2004

14. Time Deposits to Total Deposits RatioJanuary 1992 - October 2004

15. Currency to Total Deposits RatioJanuary 1992 - October 2004

16. Money Multiplier January 1992 - October 2004

17. Velocity of Money (1993-2004)

18. Variance

19. Next Challenges to Monetary Policy • Instituting a market-based monetary policy framework • Establishing an effective federal structure

20. Modern Market-Based Central Banking - 1 I. Central Bank Mandate • Effective independence • Strategic focus (price stability) II. Market-based indirect monetary control instruments (OMO / standing windows) • Easily transacted in financial markets • Can be freely and effectively priced by financial markets • Establish benchmark price/rate (or yield curve)

21. Modern Market-Based Central Banking - 2 III. Central bank structure and capacity • effective monetary decision making process • Coordination mechanisms with MOF • Centralized implementation body • Short-term liquidity forecasting and analysis capacity • Deep knowledge with financial markets and instruments IV. Information management • Improving data coverage, quality and collection • Flash reporting system

22. Federal Monetary Policy - 1 I. Federal central bank structure • New governance structure (central bank board) • Independence • More responsive to regional needs • Effective data management and communication • Strengthened payment system • Improved human capacity (particularly at the regional level)

23. Federal Monetary Policy - 2 II. Dual banking system in South Sudan • Enabling laws • Appropriate regulatory regime • Central banking facilities for conventional banks III. Uniform monetary policy • Successful introduction of the new currency • Common monetary instrument for dual banking • Coordinated monetary actions