South Sudan's English Daily Newspaper
"We Dare where others fear"
By Rombek Rombek
South Sudan’s currency, the South Sudanese Pound (SSP), has seen significant depreciation against the US Dollar (USD) over the last decade. This depreciation has caused severe economic instability, with hyperinflation and exchange rate volatility undermining business and consumer confidence. As a result, many South Sudanese have turned to the USD for larger transactions and savings, as the SSP continues to lose its purchasing power. While full dollarization—replacing the national currency entirely with the USD—may seem like a solution, it would strip the country of its monetary policy control. Partial dollarization, where the USD is used for certain transactions while retaining the SSP for domestic use, provides a more pragmatic and balanced approach to stabilizing the economy without fully surrendering monetary sovereignty.
The Economic Context: Why Partial Dollarization is Needed.
South Sudan’s economy has been beset by instability since gaining independence in 2011. The country’s reliance on oil exports, combined with internal conflict, has resulted in fluctuating revenues and widespread fiscal mismanagement. As a result, inflation has surged, and the SSP has steadily depreciated. From an initial exchange rate of 2.95 SSP per USD in 2011, the currency now trades at over 3,000 SSP per USD, with black-market rates frequently exceeding 4,500 SSP per USD. This steep devaluation has made basic necessities—such as food, fuel, and medicine—unaffordable for many South Sudanese, further exacerbating poverty levels.
The instability of the SSP has created a hostile environment for businesses, complicating their ability to price goods, manage costs, and plan for the future. Many businesses, especially those involved in foreign trade or large-scale transactions, now prefer to use the USD due to the unpredictable nature of the SSP. This has led to a growing informal dollarization of the economy, where the USD is used in many significant transactions, but without any formal policy to manage the process.
Given these economic conditions, partial dollarization is an attractive solution. By allowing the USD to circulate alongside the SSP in specific sectors, such as foreign trade, real estate, and large-scale investments, South Sudan can harness the stability of the USD while retaining the SSP for smaller domestic transactions. This strategy would enable the country to stabilize inflation, restore confidence, and encourage investment while preserving a level of monetary sovereignty that full dollarization would eliminate.
The Concept of Partial Dollarization.
Partial dollarization involves the use of a foreign currency—typically the USD—alongside a country’s domestic currency. In South Sudan’s case, the USD would be used for large, high-value transactions such as imports, exports, and savings, while the SSP would continue to be used for everyday, small-scale transactions like retail purchases and paying wages. This dual-currency approach allows the economy to benefit from the stability of the USD without entirely abandoning the national currency.
Several countries have successfully implemented partial dollarization to stabilize their economies and contain inflation. For example, in the 1990s, Peru introduced partial dollarization to combat hyperinflation and stabilize its economy. By allowing the USD to be used in high-value transactions, Peru attracted foreign investment and gradually reduced its dependence on the USD as inflation stabilized. Cambodia adopted a partially dollarized system after decades of conflict, and today, more than 80% of deposits are held in USD. This system has provided economic stability while supporting investment, but the Cambodian Riel is still used for everyday transactions, helping the country retain some control over domestic monetary policy. Zimbabwe, after years of hyperinflation, fully dollarized its economy in 2009 but transitioned to partial dollarization in 2016. The USD remains widely used for large-scale transactions, but the Zimbabwean dollar has been reintroduced for smaller domestic transactions to regain some monetary sovereignty. These examples demonstrate that partial dollarization can be an effective tool for countries experiencing severe inflation and currency depreciation. By introducing USD into the economy in a controlled and targeted way, these countries restored confidence in their financial systems and provided a more stable environment for both businesses and consumers.
The Benefits of Partial Dollarization for South Sudan
For South Sudan, partial dollarization could offer several important benefits:
- Inflation Control: One of the most immediate benefits of partial dollarization is its potential to help control inflation. By allowing the USD to be used for significant transactions, the country would benefit from the price stability of a stronger and more stable currency. This would help anchor inflation expectations, which are critical for reducing the kind of runaway price increases that have plagued South Sudan in recent years.
- Attracting Investment: Another major benefit of partial dollarization is that it would reduce currency risk, thereby increasing investor confidence. Both foreign and domestic investors are more likely to invest in an economy where they can use USD for high-value transactions without worrying about exchange rate volatility. This is particularly important for sectors like infrastructure, real estate, and manufacturing, where long-term investment is essential for growth.
- Maintaining Monetary Sovereignty: Unlike full dollarization, partial dollarization allows South Sudan to retain some control over its monetary policy. The SSP would continue to be used for smaller, local transactions, and the government would still have the ability to influence the money supply and manage liquidity. This provides a level of flexibility that would not be possible with full dollarization.
- Reducing Exchange Rate Volatility: Allowing the USD to be used in large transactions would help reduce pressure on the black market, where the exchange rate often diverges significantly from the official rate. This would help narrow the gap between official and unofficial rates, leading to a more stable and transparent foreign exchange market.
While the benefits of partial dollarization are clear, it is not without challenges. One major issue is managing two currencies, as operating a dual-currency system requires careful management and clear regulatory frameworks. The government will need to define which transactions can be conducted in USD while ensuring the SSP remains in circulation for smaller domestic transactions. Without clear guidelines, there is a risk of fragmentation, where the USD becomes preferred even for day-to-day purchases, further eroding the value of the SSP. Another significant challenge is currency inequality. Wealthier individuals and businesses with access to USD will have an advantage over those who rely solely on the SSP. To mitigate this, the government would need to ensure equitable access to USD and prevent the economy from becoming overly dependent on a foreign currency. Finally, the success of partial dollarization depends on USD inflows. South Sudan would need a steady and reliable inflow of USD, which depends on diversified exports, remittances, and foreign aid. Currently, the country is heavily reliant on oil exports, making it vulnerable to fluctuations in global oil prices. Diversifying the economy to generate consistent USD inflows will be critical for the success of partial dollarization.
Steps for Successful Implementation.
For partial dollarization to succeed, South Sudan must take several important steps. First, the government should establish a legal and regulatory framework to formalize the use of USD in specific sectors such as foreign trade and large investments, while ensuring the SSP remains in use for smaller transactions. Clear legal guidelines are crucial to prevent market distortion and provide clarity for businesses and consumers. Second, the Central Bank of South Sudan must play a pivotal role in managing the dual-currency system, ensuring adequate foreign reserves and overseeing liquidity management. Implementing long-term policies to stabilize the SSP, including inflation targeting (I will talk about this in my next article), will be essential. Third, economic diversification is critical—South Sudan must reduce its dependence on oil exports by investing in sectors such as agriculture, manufacturing, and services to generate sustainable USD inflows. A diversified economy will make the dual-currency system more stable and resilient. Additionally, public communication and education efforts will be key to helping citizens and businesses understand how partial dollarization works and how to use the dual currencies effectively. Finally, the government must build stronger institutions to combat corruption, improve governance, and ensure the effective implementation of policies that support economic growth and stability.
Conclusion
As the South Sudanese Pound continues its steep decline against the US Dollar, the time has come for decisive and strategic economic reforms. Partial dollarization stands as a pragmatic middle ground—offering the stability of the USD while preserving the sovereign flexibility of the SSP. This dual approach not only provides immediate relief from inflation but also sets the stage for sustainable growth by attracting investment and rebuilding confidence in the financial system. Though challenges such as currency inequality and consistent USD inflows require careful management, partial dollarization emerges as a practical, forward-thinking framework that could steer South Sudan toward long-term economic resilience. It is a solution grounded in stability, but with the foresight to retain control of the nation’s monetary future.
About the Author:
Rombek Rombek is a Financial Economist from the University of Kent, UK, and a Chevening Alumni. He is a member of the African Finance and Economic Association, specializing in macroeconomic policy, currency stability, and economic development in post-conflict nations like South Sudan
Email: r.rombek1@gmail.com
WhatsApp: +44 738 712 9709
Disclaimer
The opinions expressed in this article are those of the author and do not represent the official policy or position of any organization or institution. The content is for informational purposes only and should not be considered financial advice. Readers are encouraged to seek professional guidance before making any financial or investment decisions.
