Sudan Between Currency Replacement and Currency Reform

Adel Al-Rifai Abulhasan
With the 32nd meeting of the Higher Committee for Currency Change and Replacement taking place, it is becoming clear that the currency issue is being considered within a broader economic context that extends well beyond banknotes. It encompasses macroeconomic policy, exports, gold, production, value addition, legislation and electronic payments. This makes the discussion of changing the currency, in essence, a discussion of the economy the new currency will represent and carry, rather than the banknote itself.
In the previous article, Beyond the Banknote: The Story of Currency Replacement, we discussed currency replacement — that is, withdrawing banknotes in circulation and issuing new ones in their place, while retaining the same currency unit and nominal value.
Currency change, however, is a different process. It may involve changing the unit of account or the name of the currency, as happened in Sudan when the pound was replaced by the dinar, before the country subsequently returned to the pound.
Removing zeros is yet another measure, and may form part of a change in the unit of account. If, for example, three zeros are removed and one million becomes one thousand, the way in which value is expressed has changed, but the value itself has not. This is why removing zeros does not remove inflation.
Why Change the Currency?
When inflation persists for years, the currency’s purchasing power erodes, prices rise, and monetary figures grow larger, making transactions, accounting, contracts, and records more complicated. At that point, simplifying the unit of account may become an option, one form of which is removing zeros.
But changing the unit of account does not address the underlying causes of inflation. A currency can be changed in a single day, whereas building the value and confidence that sustain it requires an economy capable of producing and growing.
What Will Protect the New Currency?
The most important question to ask before making any change is: Have we put in place what is needed to safeguard the new currency and preserve its credibility?
The answer begins with the economy itself. The first thing that must precede any change is monetary and fiscal stability: bringing inflation under control, containing monetary expansion, rationalising public expenditure and limiting deficit financing through inflationary means. Successfully changing the currency unit cannot substitute for stability; it must be built upon it.
Next comes increasing production and the capacity to generate foreign currency. Exports are not merely a source of foreign exchange; they are also a source of strength that protects the national currency. Accordingly, increasing agricultural, industrial and service-sector production, raising the value of exports, maximising value addition and limiting the leakage of export proceeds are all part of building the new currency before it even appears.
It is not enough for the state to have foreign-exchange reserves at the beginning of the process. What is required is a reserve that can be replenished and increased. Reserves that are consumed to defend an unsustainable exchange rate may provide temporary stability, but they cannot protect the currency in the long term. What is needed is a sustained capacity to generate foreign exchange and rebuild reserves.
This depends on a clear and sustainable exchange-rate policy. Currency stability does not mean fixing the exchange rate at any cost. Rather, it means managing the foreign-exchange market in a way that limits sharp fluctuations, preserves the economy’s competitiveness, and avoids depleting reserves.
Then comes the banking system and the financial infrastructure. The transition requires banks capable of managing liquidity, transferring balances, updating accounts and accounting systems, and maintaining payments and transfers while continuing to finance economic activity.
It also requires a clear legal framework that protects contracts, deposits, debts and obligations, and prevents a change in the unit of account from becoming a change in people’s rights.
The transition also requires market confidence and clear rules. Conversion ratios must be known, prices must be transparent, and contracts, salaries, deposits and liabilities must be convertible clearly and understandably. There must also be a well-organised transition period to prevent the change in the unit of account from being exploited to raise prices or confuse market participants.
The picture therefore comes together: monetary and fiscal stability, production, exports, foreign exchange, reserves that can be replenished, a sustainable exchange-rate policy, and a banking and legal system capable of managing the transition.
What About the Technical Side?
Printing and distributing banknotes, updating banking and accounting systems, ATMs, electronic payment methods and transfers, public awareness, and managing the transition period are all essential. But these are matters that can be planned, tested and implemented.
The real challenge is ensuring the transition does not disrupt economic activity and the flow of money.
If the change takes place while production is weak, inflation is high, the foreign-exchange market is unstable and confidence is fragile, trade and financing could slow down, pressures on liquidity and the exchange rate could intensify, and inflation could return with greater force.
At that point, the cost of the change becomes far greater than the cost of printing and replacing banknotes. The risk could extend to the speed of economic and financial circulation and, ultimately, to confidence in the currency itself.
Timing Is the Issue
The objective is neither to postpone currency reform indefinitely nor to rush into it. The economy itself should determine the timing of the change.
In practical terms, implementation should be preceded by clear progress in reducing inflation, strengthening control over public finances, increasing production and exports, building reserves that can be replenished and expanded, stabilising the foreign-exchange market, strengthening the capacity of the banking system, and completing the necessary legal and technical frameworks.
At that point, changing the currency becomes a carefully calculated step within a broader programme of economic reform, rather than simply a rearrangement of numbers.
A banknote can be changed, zeros can be removed, and systems can be upgraded. But you can’t print value in a printing press, upload confidence onto a machine, or erase inflation by decree.
Do not start with the currency; start with the economy that will carry it.

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