Modernizing Sudans Monetary Policy Framework

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Modernizing Sudans Monetary Policy Framework

• By
• Ghiath Shabsigh
• Middle East and Central Asia Department
• International Monetary Fund
• e-mail gshabsigh_at_imf.org

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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

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The Monetary Policy Framework - 1
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The Monetary Policy Framework - 2
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The Monetary Policy Framework - 3
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Balance Sheet of the Central Bank

• Assets Liabilities
• ? Net foreign assets ? Currency
• ? Net lending to the government ? Bank reserves
• ? Net lending to banks
• ? Other net assets

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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)

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Basic Central Banking Facilities

• 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.

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Sudan Summary Monetary Policy framework -1
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Sudan Summary Monetary Policy framework - 2
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Sudan Summary Monetary Policy framework - 3
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Broad Money GrowthJanuary 1993 - October 2004
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Average 12-month CPI inflation January
1992-December 2004
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Time Deposits to Total Deposits RatioJanuary
1992 - October 2004
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Currency to Total Deposits RatioJanuary 1992 -
October 2004
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Money Multiplier January 1992 - October 2004
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Velocity of Money (1993-2004)
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Variance
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Next Challenges to Monetary Policy

• Instituting a market-based monetary policy
  framework
• Establishing an effective federal structure

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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)

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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

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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)

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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

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