What Drives Black market for dollars in Sudan?

Ibrahim Onour
Professor of Economics
The University of Khartoum
ibonour@hotmail.com

The link between black markets for foreign exchange and the rest of the economy depends on the size and the structure of the black markets, which differ from one country to another. In some countries the black market for foreign exchange has a large number of dealers. In these markets the price of foreign exchange is determined according to supply and demand for foreign currencies. In other countries، the black markets are dominated by a small number of dealers who set prices on a daily basis, using their knowledge of supply and demand. Understanding the structure of black markets requires investigation of the sources of supply and demand for foreign currencies. While research on black markets for foreign currencies received globaly limitted attention by economists, however, some authors in developing countries have successfully brought this area to the global research spotlights. Using global comprhensive data, Onour (1996) has reported that the inflow of foreign currencies to black markets comes in general from six sources: smuggling of exports, under-invoicing of exports, over-invoicing of imports, foreign tourism, and the inflow of remittances of national workers abroad, as well as the illegal diversion of foreign currency from the official market to the black market when the black market price is high compared to the official commercial banks rate. All of these sources are likely to be seen jointly in many countries, but there is always a dominant source at each time and in each country, depending on the economic policies and sources of foreign currency in that specific country. When looking at the fast rise of the black market price of the dollar in the past two monthes in Sudan we can realize that the fast depreciation of the Sudanese pound in dollar value is not associated with real economic factors related to real demand and supply, but due to individual trading manipulations aiming at weakening the national economy in line with the the on-going struggle for power in the country. Such strategy of draining the official market for foreign currencies follows two parallel steps: The first step is the use of huge sum of domestic currency stollen by the Rapid Support Forces, which fights the national army, from all commercial banks to buy foreign currencies available inside the country to purchase weapon from outside the country. The second step is, because of the large influx of Sudanese who fled their country to neigboring countries at the war time, a significant portion of flows of foreign currencies remitted by Sudanese nationals abroad diverted away from commercial banks in Sudan to countries hosting these refugees. As a result, both these factors played a vital role in draining foreign currencies outside the country and thus, resulting in fast depreciation of domestic currency value in terms foreign currencies as witnessed these days.