The Impact of Monetary Policy on The Banking system (Sudan 1992-2002)

Abstract

The Sudan, despite its vast economic natural resources, is considered one of the developing countries suffering seriously from bottlenecks and economic problems, such as, structural imbalances and lack of political stability in addition to the internal wars which are destructive to the human and natural resources in the south and west of the country. In its endeavour to adopt a balanced economy to face these bottlenecks, the government tried to implement a comprehensive economic reform programme called the comprehensive National Strategy Programme. The monetary policy was a pivot of discussion between it’s makers, academicians, and the intellectuals regarding the effects of such policy and how far it is effective in the success of the comprehensive banking system reform programme initiated by Bank of Sudan as a central bank to develop the banking system as one of the economic sectors that effective in the development process in the country. This study considers the monetary policy as a tool in the economic reform and it is an attempt to know its effects on the performance of the Sudanese banking system. The study discusses the instruments of the policy in the conventional and Islamic systems. Moreover, it sheds light on the evaluation of the monetary policy during the last decade. The study discusses also the reforms adopted by Bank of Sudan at the beginning of the 1990s to enhance the performance of the banking system. The method used is descriptive, and analytical in nature ,explaining the variation in the money supply, the gross national product, the exchange rate, the inflation rate, and some of the economic indicators of the banks’ performance during the period under study. (iii) The study is divided into five chapters. The first and second chapters cover the introduction and the literature of the study respectively. The third chapter explain the theoretical definition of the monetary policy and it’s instruments in the traditional and Islamic systems. It clarifies the advantages of the new instruments introduced by the central bank i.e., the Central Bank Musharaka Certificate (CMC) aimed to manage liquidity, and the Government Musharaka Certificate (GMC) introduced by Ministry of Finance to finance the budget’s deficit. These instruments proved their success as a new monetary policy instruments of the Islamic system. The fourth chapter discusses the strategy of development of the banking and financial sectors in the Sudan. It discusses the definition of the financial sectors and what it encompasses: banks and non-banking financial institutions. Moreover, this chapter includes the historical development of the money supply and its distribution criteria between the public and private sector. It includes also the historical survey of the policies followed by Bank of Sudan since the last decade up to it’s adoption of the comprehensive banking reform (1999-2002). This chapter also covers the alteration made through the last decade in the monetary and finance policies. The fifth chapter include conclusions and recommendations, which summarizes the result of the implementation of reforms programme in the banking system and how it affected the development of the banking system performance positively. The study recommended that the efforts must be continuing the reform and removal of the restrictions and obstacles in the banking policies. Therefore, the banking system could be effective in the economic development process of the contury.