Currency Replacement Process Sparks Concerns Over Cash Crisis

Sudanhorizon – Nazek Shammam

Four days into the currency replacement process, which began last Tuesday, concerns and apprehensions still surround the operation despite the overwhelming participation of citizens in the seven states identified earlier by the Central Bank of Sudan.

Banks are experiencing an unprecedented rush of citizens opening bank accounts and depositing their savings in denominations of 500-1,000 Sudanese pounds. While the Central Bank has facilitated the process by allowing online account openings and accepting national ID as proof of identity, banks remain crowded with people from all walks of life during extended working hours, now running until 6 p.m. instead of 3 p.m.

On Thursday, Ahmed Abdel Rahman Al-Houri, the official spokesperson for the Union of Banks, confirmed that the currency replacement process is proceeding smoothly, securely, and organised across all participating states. In a press statement, he said, “The Transitional Sovereign Council has issued a directive for both public and private institutions to cease accepting cash payments and instead use electronic and banking payment methods.”

Al-Houri encouraged citizens to take advantage of the extended banking hours, including holidays, to open accounts and deposit funds, avoiding the rush that typically occurs toward the end of the replacement period. He reiterated that the Central Bank of Sudan would only extend the replacement period to December 23, after which the old 1,000 and 500-pound notes would no longer be valid in the designated states.

Despite the strong participation, challenges have surfaced since day one, with counterfeit currency found in deposits in several states. The Central Bank has responded promptly, with Governor Burai Sadiq emphasising the importance of verifying banknotes at commercial banks before forwarding them to the Central Bank. He also called for equipping banks with counterfeit detection devices.

Although the Central Bank closely monitors the process, fears of additional issues, particularly a liquidity shortage, have emerged. The bank has set a daily withdrawal limit of 200,000 Sudanese pounds and ceased all cash withdrawal exemptions for institutions.

Banking experts warn of a potential liquidity crisis as the currency replacement progresses, citing the limited activation of electronic payment systems, which rely heavily on a single banking application. This lack of comprehensive financial inclusion could hinder the process. Experts reference similar past experiences, noting that cash remains the preferred medium for most transactions, and a significant portion of the monetary supply remains outside the formal banking system.

Economists warn that if these issues are not addressed, the currency replacement process could exacerbate economic problems rather than solve them. Banks have been advised to prepare for potential challenges.

However, sources at the Central Bank of Sudan have dismissed concerns over a liquidity crisis, assuring that large amounts of currency have been secured for the operation. The bank also continues to promote a culture of electronic payments while limiting cash usage to a minimum.

Traders in Port Sudan markets confirm that cash is currently plentiful, with no signs of a crisis. Babiker Ibrahim, a trader in Port Sudan, stated, “Cash is readily available in the markets, and there is no cash shortage.” He noted that the currency replacement process has yet to affect cash availability, with market activity continuing as usual during the fiscal year-end.

Banking expert Dr Walid Dalil also ruled out a prolonged liquidity crisis, attributing the stability to banking applications and suggesting that any issues would likely be short-lived. Dalil described the currency replacement decision as an effective solution for absorbing illegal funds within the local economy.

He highlighted the benefits of currency replacement, including drawing cash into the formal banking sector, attracting parallel market funds into official channels, and accurately assessing the volume of money outside the formal economy. He added that this would help reduce monetary inflation and reintroduce confidence in the new currency among citizens.

Dalil emphasised that currency replacement is a strategic move to combat inflation, stabilise the economy, and reintegrate hoarded and saved cash into the banking system, ultimately supporting local investment channels. He noted that while some short-term challenges, such as public mistrust of the new currency, are inevitable, the long-term benefits of economic growth and reduced inflation outweigh these obstacles.

Finally, Dalil underscored the importance of replacing damaged or unfit currency, which, if left unaddressed, can impose hidden costs and pressure on a nation’s economy. He concluded that the currency replacement process is necessary to revitalise the national economy.