The central bank’s most recent official inflation release, way back in April, put South Sudan’s annual inflation rate at 37.2 percent. But, since then, things have deteriorated. My measurement for South Sudan’s inflation employs purchasing power parity theory (PPP) and the use of high‐frequency, foreign‐exchange‐rate data. This allows me to measure inflation rates for countries with elevated rates of inflation very accurately each and every day. Today, by my measure, South Sudan’s inflation rate is 54 percent per year.
South Sudan could have easily avoided this punishing inflation. On the first day of South Sudan’s formal existence, renowned currency expert Warren Coats, my good friend and colleague at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, was in residence in Juba, South Sudan’s capital city. He was operating as a consultant to the Bank of South Sudan. At that time, Warren and I were both advocating for a South Sudanese currency board. This would have made the South Sudanese currency a clone of the U.S. dollar, which would have not only ensured currency stability, but would also have guaranteed low inflation.
A currency board is a monetary institution (or a set of laws that govern a central bank) that issues a domestic currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency. Under a currency‐board arrangement, there are no capital controls. The domestic currency, which is issued by a currency board, is backed 100 percent with anchor currency reserves, so the local currency is simply a clone of its anchor currency.