Sudan Between the Dollar and the Pound: The Battle for Confidence and Survival

Dr Al-Sadiq Ali Haj Al-Sheikh
In times of stability, the exchange rate is viewed as an economic indicator that rises and falls according to market movements. In times of crisis, however, it becomes a measure of the state’s ability to protect its economy, preserve the confidence of its citizens and ensure the stability of their daily lives.
From this perspective, the crisis of the Sudanese pound cannot be reduced to the rise of the dollar or the depreciation of the national currency. Rather, it reflects deeper imbalances affecting production, institutions, markets and confidence in the future.
The relationship between the pound and the dollar is not merely that of two currencies. At its core, it is a relationship between the economy and confidence. When citizens and investors trust the economy’s ability to grow and stabilise, they hold and invest in the national currency. When that confidence declines, the search for safer stores of value, such as the dollar or gold, becomes a natural economic behaviour, not merely a response to price movements.
First: The Roots of the Crisis
Macroeconomic theory confirms that the exchange rate ultimately reflects the strength of the real economy. According to purchasing power parity theory, no currency can preserve its value if prices rise faster than output and productivity. Balance-of-payments theory also indicates that a persistent deficit between exports and imports generates rising demand for foreign currencies, placing continuous pressure on the national currency.
In Sudan, the crisis of the pound did not begin with the war. It was preceded by years of structural imbalances, including a weak productive base and heavy dependence on imports of food, fuel and medicine, against exports concentrated in gold and a limited number of primary agricultural products. The widening fiscal deficit and reliance on monetary expansion to finance it also led to rising inflation and the steady erosion of the pound’s purchasing power.
Then came the war in April 2023, deepening these imbalances. Large areas of production came to a halt, infrastructure was damaged, supply chains were disrupted, exports declined, the informal economy expanded, and the state’s ability to manage economic activity became more limited. The crisis thus moved from a phase of fragility to one of full exposure.
Second: The Dollar Is Not the Problem — It Is the Result
Much public discussion focuses on the rise in the dollar exchange rate as though it were the direct cause of the crisis. Economic literature, however, suggests that buying dollars is often a consequence of lost confidence in the local currency, not an independent cause of the crisis.
Money performs three main functions: it is a medium of exchange, a unit of account and a store of value. The Sudanese pound still performs the first two functions within the domestic economy, but it faces a growing challenge in performing the third: preserving value over time.
When inflation rises and expectations of currency depreciation increase, individuals and businesses seek to protect their savings by holding dollars, gold or real estate. Economists describe this behaviour as currency substitution, whereby a foreign currency begins to perform some of the functions of the national currency as confidence in its stability declines.
Demand for the dollar, therefore, does not necessarily reflect a preference for a foreign currency so much as a rational attempt to protect savings from erosion. Limiting this phenomenon cannot be achieved through administrative restrictions alone. It requires rebuilding confidence in the pound through macroeconomic stability, lower inflation and an improved investment environment.
Third: The Parallel Market — A Mirror of Economic Imbalances
The expansion of the parallel foreign-exchange market is one of the most visible manifestations of the crisis, but it also reflects deeper economic imbalances. When multiple exchange rates exist, prices lose their natural ability to guide investment and trade, opportunities for speculation increase, and official channels play a diminished role in supplying foreign currency.
Markets are not driven by current facts alone, but also by expectations about the future. If people become convinced that the pound will continue to depreciate, demand for dollars increases, their price rises, and expectations themselves become a force pushing the crisis into greater complexity.
Stabilising the exchange market therefore requires more than regulatory measures. It requires coherent, understandable economic policies that restore confidence among citizens and investors that the currency’s value will be based on an economy capable of producing, not on temporary market interventions.
Fourth: Institutions and Gold — Great Resources Requiring More Efficient Management
No monetary policy can achieve its objectives in the absence of institutions capable of implementing it efficiently. The strength of a currency is therefore closely linked to the quality of economic institutions, the clarity of laws, administrative efficiency, and coordination between fiscal and monetary policies.
In Sudan, the institutional framework faces several challenges. These include the need to strengthen the Central Bank’s capacity to manage monetary policy, improve supervision of the banking sector, modernise foreign-exchange legislation, and gradually integrate informal economic activities into the formal economy.
At the same time, Sudan possesses a strategic advantage in its gold wealth, being one of Africa’s largest gold producers. Yet this advantage has not become a sustainable source of support for foreign-exchange reserves because of continued smuggling, the wide gap between local and international prices, and the multiplicity of bodies overseeing the sector.
Sound management of gold does not mean that the state should monopolise trade or exports. Rather, it means building a regulatory system that makes selling through official channels more viable and profitable than smuggling, through fair pricing, clear procedures and prompt payment, thereby strengthening the flow of export proceeds into the formal economy.
Fifth: What Have International Experiences Taught Us — and Why Did They Succeed?
The experiences of countries that have faced severe currency crises show that restoring currency stability has never been the result of a single monetary decision. It has been the product of integrated economic and institutional reform that rebuilt confidence in both the state and the economy.
In Rwanda, post-war recovery came through rebuilding state institutions, strengthening the rule of law, improving the investment climate and expanding the productive base, which gradually restored confidence in the national economy.
In Turkey, after the 2001 crisis, banking-sector reform, stronger monetary policy management, and fiscal discipline helped reduce inflation and restore confidence in the lira in subsequent years.
Poland succeeded through gradual legal and economic reforms that supported the market economy, encouraged investment, production and exports, and were reflected in currency stability and improved competitiveness.
Germany’s experience after the hyperinflation crisis of the 1920s confirms that monetary reform cannot achieve its objectives unless it is accompanied by public finance reform, real-economy reconstruction, and renewed public confidence in state institutions.
Despite differences in their political and economic circumstances, these countries’ success rested on four main principles: credibility in economic policy, fiscal discipline, institutional reform, and the strengthening of production and exports.
Their experiences show that markets respond more to what they believe will endure than to temporary decisions, and that the strength of a currency is not built through administrative interventions alone, but through a productive economy, effective institutions and consistent policies.
Sixth: Economic Confidence — The Invisible Capital
Exchange rates are not driven by economic indicators alone. The expectations of citizens and investors also shape them. Modern behavioural economics shows that confidence is one of the most important intangible assets in any economy. It affects decisions on saving, investment and consumption, as well as demand for the national or foreign currency.
When individuals trust the stability of economic policies, speculation in foreign currencies declines and willingness to hold and invest in the national currency increases. When confidence declines, negative expectations become a force driving the crisis, demand for the dollar rises and the depreciation of the local currency accelerates.
Restoring confidence is therefore not only a result of reform; it is also one of the most important conditions for its success. Successful economic reform sends a clear message to citizens and markets that policies are consistent and that institutions are capable of implementing them efficiently and sustainably.
Seventh: What Does Sudan Need?
Addressing Sudan’s exchange-rate crisis requires a gradual vision that takes into account the condition of the economy and the realities of the post-war period. The key priorities may be summarised as follows.
In the short term, Sudan needs to limit inflationary financing of the fiscal deficit, improve management of the foreign-exchange market, regulate the gold trade in a way that reduces smuggling and increases flows through official channels, strengthen the Central Bank’s capacity to manage monetary policy, and expand official channels for receiving remittances from Sudanese abroad.
In the medium term, Sudan needs to reform the banking system, modernise foreign-exchange and investment laws, develop electronic payment systems, promote financial inclusion, and work to narrow the gap between exchange rates whenever economic conditions allow.
In the long term, Sudan needs to rebuild its productive base, increase agricultural and industrial output, diversify exports, and build adequate reserves of foreign currency and gold, managed in accordance with standards of transparency and governance, within an integrated national programme for post-war economic reconstruction.
These measures are not separate solutions, but links in a single chain. The success of each depends on progress in the others.
Conclusion
The crisis of the Sudanese pound is not merely an exchange-rate crisis. It reflects a long economic and institutional trajectory in which the challenges of production, public finance and economic management have become intertwined with the effects of war and declining confidence. Addressing the crisis therefore does not begin with the currency market alone, but with rebuilding the foundations on which the value of any currency rests.
Perhaps the most important lesson from successful economic experiences is that the strength of a currency is not a goal imposed by decisions. It is the natural outcome of a productive economy, efficient institutions and consistent policies that enjoy public confidence. When the state restores these foundations, the pound will regain strength as a reflection of economic health, not merely as a figure in the foreign-exchange market.
The exchange rate can be viewed as a composite indicator of national confidence. It reflects not only the relationship between two currencies, but also the level of trust in production, institutions and the state’s ability to manage its economy efficiently. The stronger these elements become, the closer the exchange rate comes to reflecting the economy’s real value rather than the anxiety surrounding it.
States do not build strong currencies by issuing more money. They do so by building economies that produce, institutions that govern efficiently, and societies that trust the future. When these elements come together, currency stability becomes a natural result, not a separate objective pursued in isolation.

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