RESPONSE TO PLAN B - SUDAN MOVING TO REPLACE THE

UNCLAS KHARTOUM 000209 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR AF/SPG AND EEB/OFD/OMA PLEASE PASS TO USAID FOR AFR E.O. 12958: N/A TAGS: EFIN EPET ETRD ECON US SU SUBJECT: RESPONSE TO PLAN B - SUDAN MOVING TO REPLACE THE DOLLAR FOR TRADE ¶1. (U) The Central Bank of Sudan is taking steps to use currencies other than the U.S. Dollar for commercial transactions. On February 12, the Bank announced it has approved the use of some Asian currencies in settlement of commercial transactions. Sudan's most important source of foreign exchange is the export of oil, primarily to Asian countries, including China, Malaysia and India. The decision to try to replace the dollar with Asian currencies follows from Sudan's trade patterns. ¶2. (U) This comes at the same time as the Ministry of Foreign Affairs stated that intensified U.S. economic sanctions, so called Plan B, are an "unjustifiable escalation of existing tensions" between the two countries. The spokesman for the Ministry said that U.S. sanctions would obstruc th Naivasha Peace Agreement, as sanctions would negatively affect the oil revenues that are being shared with the south in accordance with the peace agreement. ¶3. (SBU) According to the manager of Byblos bank, the Governor of the Central Bank suggested to commercial bankers at a monthly meeting last week that they consider undertaking transactions in Asian currencies, especially the yen, and in Euros. The intention being to reduce exposure to a potential freeze in dollar based transactions. The Byblos manager speculated that a freeze in dollar based transactions could lead to increased volume of transfers of dollars through alternative means such as "hawalas". It might provide opportunities for money laundering and increased opportunities fo organized crime, he said. ¶4. (SBU) Econ officer spoke to local IMF representative, who noted that moving away from the dollar completely would be difficult for Sudan, as the Sudanese Dinar is effectively pegged to the dollar and reserves are maintained primarily in dollars, with some holdings of Euros. Even loans from China are denominated in dollars. IMF rep noted that the worldwide trend is for Central Banks to reduce dollar reserves and increase reserves of other currencies, especially Euros. HUME