July 27th, 2011
10:25 AM GMT
(CNN) – Barely a month after South Sudan marked independence, a new type of conflict threatens to define relations with its neighbors in Khartoum: a currency war.
The so-called “economic war” stems from a violation in an agreement between Sudan and South Sudan over the Sudanese pound, the prior legal tender, after the south declared independence on July 9.
Initially, the two sides agreed to use the old Sudanese pound for another six months to ensure a smooth transition of capital. But soon after its independence, the south – acting on claims that the north was suppressing cash flows across the border – established its own currency, the South Sudan pound.
Fueled by what it considered a violation in their agreement, Khartoum unveiled a new version of its currency on Sunday, and moved to devalue its old notes completely.
While the currency split itself is not innately worrisome, the problem lies in the estimated 1.5 billion old Sudanese pounds still circulating in South Sudan.
Initially, South Sudan counted on selling the old Sudanese pound back to Khartoum to prop-up their infant economy. But Khartoum, worried that the South Sudanese could hold their tender hostage, introduced the new Sudanese pound as a “precautionary measure,” according to the BBC.
It also banned the import of old notes, leaving the south with $700 million of worthless old currency, according to Pagan Amum, South Sudan’s secretary general.
Amum – a member the Sudan People’s Liberation Movement (SPLM) – called Khartoum’s decision to launch a new currency the “first act… to destroy the economy of South Sudan,” Reuters reported.
"This is a hostile act (that) is contrary to our emerging as two states on good terms," Amum said, according to AFP.
When the new South Sudanese pound was released last week, it was pegged to the Sudanese Pound at an exchange rate of 1 to 1, or 2.68 to the U.S. dollar, according to the Central Bank of Sudan.
With the introduction of its new currency, the north is expected to use the fate of the old Sudanese pounds in the south as a bargaining chip for future oil revenue talks, Reuters said.
South Sudan now controls roughly 75% of the oil formerly administered by the north, a survey by the International Monetary Fund found. And while South Sudan has the oil, Sudan has the oil infrastructure.
Mohammed El Hassan El Bahi, the director general of Sudan’s currency printing company, said he expected the South Sudan pound to “collapse very soon as was the case with Zimbabwe,” The Sudan Tribune reported.
“It would have been better for them to wait for two years at least until the state gets strong enough to issue its own currency,” he said.
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