Expert says currency crisis requires comprehensive economic reforms as Central Bank of Sudan policies achieve only partial success

By Suleiman Siri for Radio Dabanga

The rapid escalation in the exchange rate of foreign currencies against the Sudanese Pound (SDG) has left the government searching for solutions to the crisis. The dollar resumed its upward climb less than a week after a temporary decline, having fallen to SDG5,800 from SDG6,000 following the Central Bank of Sudan’s injection of foreign currency into the banking system. The central bank’s policies to curb the rise increasingly resemble palliatives or temporary fixes rather than a comprehensive package capable of addressing the structural roots of Sudan’s economic crisis.

In a notable development, the Central Bank of Sudan has taken a series of supervisory and administrative measures against several commercial banks, based on inspections that uncovered violations of regulations and directives governing foreign exchange transactions.

Pursuing stability

Abdullatif Ali Ibrahim, a banking expert, argues that economic stability depends on harmony and integration between the labour market, fiscal policy, and monetary policy. The Central Bank of Sudan, as the authority responsible for implementing monetary policy, has a corresponding duty to preserve its stability through managing the money supply, regulating finance, and supervising the foreign exchange market.

Speaking to Radio Dabanga, he said: “On that basis, the Central Bank of Sudan has the legal authority to take action against banks and their employees over violations relating to foreign exchange transactions.” Such measures, he argued, help ensure the effective implementation of foreign exchange policy.

He warned that any failure in the implementation of foreign exchange policy would create distortions in the exchange rate, public indebtedness, and inflation, adding that these problems could all be traced to weaknesses within the current economic system.

Any breach of these policies or regulatory violations, he said, directly undermines exchange-rate stability, depletes the country’s foreign currency reserves, disrupts import financing, weakens the banking sector, and erodes public confidence in the financial system.

He described the central bank’s recent decision to inject AED400m into the banking sector as producing only a limited and temporary reduction in the exchange rate. Although the currency strengthened during the first few days, the improvement quickly lost momentum. The measures had achieved only partial success and were insufficient to tackle the underlying causes of exchange-rate instability.

Lack of policy coordination

Mr Ibrahim maintained that the dollar’s continuing rise reflects the absence of coordination between monetary policy, fiscal policy, and the labour market. At the same time, he stressed that this was not the only reason for the Pound’s decline, arguing that the crisis requires comprehensive structural reform rather than piecemeal intervention.

The measures taken by the Central Bank against certain banks and employees, he said, fall within its legal powers but do not address the structural imbalances driving exchange-rate volatility.

“If the central bank is trying to manage the crisis while other parties continue opening loopholes that push the exchange rate higher, monetary and banking policies will inevitably fail,” he said. Such failures, he argued, stem from accumulated economic weaknesses relating to liquidity, broader economic policy, and the level of foreign exchange reserves. The issue is therefore not simply one of dismissing employees but of adopting a comprehensive response to the wider economic crisis.

He added that, under the Central Bank Act, the Banking Regulation Act and labour legislation, the Central Bank has broad authority to take whatever measures are necessary to implement monetary policy. Its primary role, he said, is supervisory. “The closer and stricter the supervision, the more closely the banking sector will align with the monetary policies set by the central bank.”

Whenever violations of monetary policy are detected, he added, the central bank has the legal authority to intervene immediately to safeguard the integrity of the banking sector and adopt the necessary measures.

Its remit extends beyond foreign exchange operations to financing activities, protecting depositors’ funds, and addressing embezzlement or other irregularities that could undermine the banking system. A substantial body of legislation, he noted, provides the central bank with the legal basis for such interventions.

The central bank’s authority

Asked about the Central Bank’s power to dismiss bank employees, Mr Ibrahim said that if the intention was to require commercial banks to take disciplinary action against staff found responsible for serious violations, such action falls squarely within the central bank’s supervisory powers.

The central bank may instruct a bank’s management to remove employees responsible for serious breaches or require appropriate disciplinary measures where they are no longer considered fit to hold their positions because they no longer meet professional standards or have committed grave misconduct.

He noted that the Central Bank has a direct legal relationship with commercial banks only in relation to approving the appointment of chief executives and their deputies. Under the law, it may withdraw that approval or require their removal if they are found to have committed violations affecting the soundness of banking operations.

By contrast, the Central Bank has no direct legal relationship with other bank employees. Its role is limited to instructing bank boards to take appropriate disciplinary measures against staff found responsible for serious misconduct.

Compliance with the law

Mr Ibrahim said he did not have sufficient information to determine whether the Central Bank had complied fully with all legal procedures and standards when imposing its recent sanctions on a number of banks and employees. Nevertheless, he considered it likely that the Bank had followed the correct legal process.

He noted that the Central Bank’s banking supervision department has specialised inspection teams that regularly review banks’ compliance with banking regulations and policies, including rules governing lending and foreign exchange operations.

Sudan’s banking history, he observed, has seen numerous cases involving violations of financing and foreign exchange regulations. “The Central Bank’s accumulated experience equips it to deal with such cases and to take the necessary legal action against those responsible,” he said.

Failure to comply with proper legal procedures, however, could weaken the Central Bank’s legal position and expose its decisions to challenge before the courts by affected banks or individuals, potentially undermining the effectiveness of future supervisory action.

Conversely, strict adherence to legal procedures strengthens the principles of justice and the rule of law while giving the Central Bank’s decisions greater authority. Any procedural shortcomings, he warned, could create grounds for appeals leading to those decisions being overturned.

International standards

On whether the measures conform to international banking standards, Mr Ibrahim reiterated that he lacked detailed information about the precise legal basis on which the Central Bank had acted in the present case.

However, he added: “If these measures have been taken in accordance with Sudanese law governing the Central Bank, or under the general legal framework regulating banking, I do not believe they would conflict with international banking supervision standards.”

Such interventions, he argued, are a core function of central banks worldwide. He pointed to institutions such as the Bank of England and the Central Bank of the United Arab Emirates, both of which have previously imposed fines and regulatory sanctions on commercial banks under their supervision. Such action, he said, represents the normal supervisory role of a central bank.

From the perspective of governance and banking supervision, tighter oversight of foreign exchange transactions is both natural and necessary, particularly given Sudan’s severe economic difficulties and the sharp volatility in its currency market.

The Central Bank, he argued, is obliged to use every available instrument to restore economic stability. The effectiveness of such measures, however, depends primarily on the clarity of the alleged violations and on strict adherence to due legal process before sanctions are imposed.

He concluded that the banks concerned should be given a full opportunity to respond and defend themselves. If they consider the measures unlawful or unjust, they have the right to seek an administrative review by the Central Bank or to challenge the decisions before the courts and other competent authorities. Penalties, he said, should always be proportionate to the nature and seriousness of the offence, stressing that striking the right balance between rigorous supervision and procedural fairness is the only way to strengthen confidence in Sudan’s banking system.