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1
Modernizing Sudan’s Monetary Policy Framework
By
Ghiath Shabsigh
Middle East and Central Asia Department
International Monetary Funde-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
Monetary Policy Strategy
Strategy ObjectivesIntermediate Targets
• Money Supply• Exchange rate• Long-term interest rates
• Price Stability• Long-term economic growth
4
The Monetary Policy Framework - 2
Monetary Policy Operation
Operating Targets Instruments
•Direct Controls• Legal Reserve Requirements• Official Interest Rate• Market Operations
• Bank Reserves• Short term Money Market Interest Rate
5
The Monetary Policy Framework - 3
Central Bank Structure
Status &Mandate
InternalOrganization
HumanCapacity
InformationManagement
6
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
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
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.
9
Sudan: Summary Monetary Policy framework -1
Period Pre-1997 1997-2001 2002-2004
Strategy Budget financing & credit allocation
Price stability
Price stability & economic growth
Policy Anchor
None Exchange rate
Money supply
Operating target
Credit plan Bank reserves (& credit)
Bank reserves
10
Sudan: Summary Monetary Policy framework - 2
Period Pre-1997 1997-2001 2002-2004
Instrument Pervasive direct controls: Credit ceilings, Rates, bank lending, & high legal reserves
• Moderate direct controls
• Financing windows
• Indirect instrument
• Indirect controls
• Financing windows
• OMO
Information • Basic
• Substantial lags
• Better coverage & data quality
• Simple flash report
• Shorter lags
• Expanded flash report
• Short-term Forecasting
11
Sudan: Summary Monetary Policy framework - 3
Period Pre-1997 1997-2001 2002-2004
BOS Status Powers delegated by MOF
• Powers delegated by MOF
• Increased operational autonomy
• Independent (by Law)
BOS Structure Departments acting separately to implement the credit and FX plans
• Improved coordination
• Monetary policy Comm.
•MOU
•Departments are guided by The above
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Broad Money GrowthJanuary 1993 - October 2004
0
20
40
60
80
100
120
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
13
Average 12-month CPI inflation January 1992-December 2004
0
20
40
60
80
100
120
140
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
14
Time Deposits to Total Deposits RatioJanuary 1992 - October 2004
10
15
20
25
30
15
Currency to Total Deposits RatioJanuary 1992 - October 2004
35
41
47
53
59
65
71
77
83
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
16
Money Multiplier January 1992 - October 2004
1.1
1.3
1.5
1.7
1.9
2.1
2.3
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
17
Velocity of Money (1993-2004)
0
2
4
6
8
10
12
14
16
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
18
Variance
0
5
10
15
20
25
30
35
40
Ex Res-Dep Ratio Broad Money Inflation
1999-2001 2002-2004
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
24
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