New Syrian Currency … Cheating Milk with Water

Duraid Dergham, governor of the Central Bank of Syria, in a news conference on Sunday 2 July

Duraid Dergham, governor of the Central Bank of Syria, in a news conference on Sunday 2 July



The Syrian regime surprised citizens last week by issuing a new 2,000 Syrian Pounds banknote, which consequently raised questions about the fate of the Pound and fears of its deterioration, amid assurances from the Central Bank of Syria that the Syrian Pound is fine.

The launching of the new banknote surprised Syrians at two levels. The first was the timing of its launching, particularly since the former governor of the Central Bank of Syria, Adib Mayaleh, denied in 2015 the government’s intention to introduce a new 2000 banknote, whereas the second was putting a portrait of the head of the Syrian regime, Bashar al-Assad, on the new banknote, to be the first time he appears on the Syrian banknote since he assumed office in 2000. This could be considered as a political message to his opponents that he is still powerful after long years of war, said the assistant of the Minister of Finance in the Interim Government and the chief economist in Daraa, Abdul Karim al-Masri, in an interview with Enab Baladi.

“The Central Bank” Justifies the Introduction of the New Banknote

During a press conference held on Sunday 2 July, the governor of the Central Bank, Duraid Dergham, announced the introduction of the new banknote with al-Assad portrayal on the front side of the note, beside the Umayyad Mosque. On the back of the note, however, there is a picture of the headquarters of the People’s Council of Syria.

Dergham said on his Facebook page that the issuance of the new banknote is necessary to deal with the issue of price increase that occurred in the previous years, reassuring Syrians that “it will not affect the current monetary policy. The best evidence for this is that this banknote was not launched in 2015, until after confirmations that it will not affect the stability of current monetary policy that has been going on for almost a year.” Dergham called on “national journalists to confirm that the introduction of the new banknote is a natural result to absorb the previous increases that Syrians suffered from, regarding the huge amounts of money they need to pay in their daily exchanges.”

The former minister of economy in the Syrian regime government, Nidal al-Shaar, confirmed Dergham’s justification. He considered that issuing a higher banknote of the Syrian currency will not have the expected negative impact because of several reasons he listed on his Facebook page, such as “a large category still relies on income sources in the Syrian currency, and prefer to carry out transactions with it.”

But Abdulrahman al-Jamous, Doctor in Economics and Management Strategies, assured to Enab Baladi that the new banknote was issued as a result of the decline in government revenues as well as the increasing attrition of the supporting countries (Russia and Iran) on the one hand, and the increasing costs of military spending on the other.

Introducing the New Currency is Like “Milk Cheating”

Al-Jamous explained that the introduction of a new banknote occurs in two cases. While the first is the replacement and withdrawal of the worn out currency as a result of trading in the market (without increase in the money supply), which is a normal situation that happened in many countries, in the second case it is printed to finance the state budget (deficit financing) and to face the increasing spending on salaries and wages.

Deficit financing is defined as the government borrowing from the banking system (the central bank) to fill the deficit that occurs in the state budget and which has negative effects, the most important of which is the problem of inflation which refers to an increase in money offset by a decrease in goods.

The deficit financing occurs when the State’s expenditures exceed its revenues, which results in a deficit covered by the new monetary issuance. But, that leads to inflation, that is, a rise in prices, and to the increase of government spending. This increase is not proportional to the quantity of goods and services produced when this increase occurs.

Al-Jamous said that the situation where there is more circulated money leads to the imbalance of the overall price level. He compared the monetary policy adopted by the government of the regime in the issuance of the new banknote with the process of “milk cheating.” He explained it saying that “the seller pours water in milk to increase revenues, but continuing to pour water may reach a stage where the proportion of water in the milk is much higher than the milk itself and therefore no one will buy it,” in reference to the loss of currency much of its value with the introduction of the new banknote.

The assistant of the Minister of Finance, Abdul-Karim al-Masri, confirmed to Enab Baladi that issuing a new banknote in the current situation will lead to an increase in the money supply and in monetary inflation as well as to the significant deterioration of the Syrian Pound against the dollar, because there is no production capacity in Syria against the issued monetary supply. Actually, production is halted and output is almost completely paralyzed, whether agricultural or industrial.”

Al-Masri added that the issuance of funds now means “deficit financing” because the budget in Syria for 2017 has a deficit of about 70 billion Syrian Pounds. The regime wants to cover this with financing deficit, which carries great risks, namely the devaluation of the original Pound and the possibility of its collapse.

Al-Assad’s Portrait … Political Messages  

Including al-Assad’s portrait on the new currency, though it has no economic connotations, was considered by some as a political message to his opponents at home and abroad.

Al-Masri considered that the political objective of putting the portrait is to convince the world that he is powerful, that the regime’s governmental institutions still exist and that Syrian people still want him as president. He  stressed also that the decision to put the portrait is a dictatorial decision, like the rest of the previous ones, and does not give al-Assad any legitimacy since he lost it from the beginning of the revolution.”

Mohammed al-Bakour, a board member of the syndicate of Economists in Aleppo countryside, considered that al-Assad’s portrait is put on the new banknote to impose his domination and prove the regime’s existence. “What is the difference between the portrait of the big criminal (the portrait of the former president Hafez al-Assad on one thousand Pounds bill) and the little criminal (Bashar al-Assad)? It is the same?” he wondered.

Warnings of Currency Exchange in the Opposition Areas

Following the introduction of the currency, voices and warnings from the areas controlled by the Syrian opposition increased, preventing the circulation of the new currency under penalty of imprisonment and confiscation of funds, whatever is its value.

The Syrian Interim Government issued a statement on Saturday 8 July warning against the circulation of the new banknote, for reasons it said were based on “the basic statute of the Syrian Interim Government and public interest.”

The “Free Economists’ Commission for Growth and Development” issued a statement considering that “the acceptance of using the new banknote in exchanges confirms the control of the ruling gang and the extension of its influence over all liberated areas. They will do this through controlling the economy and marketing itself abroad at the expense of the weakness and dispersion of the revolution, in addition to withdrawing foreign exchange from the liberated areas and using it to fund the war against the rebellious population.”

The commission stressed also that “the introduction of a banknote with low cost, compared to its purchasing power, will provide a surplus paid by the regime to its supporters rewarding them for slaughtering the rebellious people.  This will further increase the economic inflation that will lead to price chaos in the liberated areas, the increase of the suffering of the poor and widening the gap between the social classes, in addition to the increase of social problems exploited by the regime to justify the existence of (Shabiha) with reasons of security in the areas controlled by the opposition.

Bakour, a member of the Association of Economists in the countryside of Aleppo, attributed the reason for the warnings to the fact that the first beneficiary of currency circulation in the opposition areas is the regime.  In reality, this is done at the expense of a new collapse of the purchasing value, and therefore the fluctuation in prices, imbalance in the markets and losses for traders, who are the main victim and who will compensate their losses through the consumer.

According to Bakour, all studies indicate that the “liberated areas are among the important sources of foreign exchange for the regime which will attempt to circulate the new currency and replace it with foreign currency, including the dollar and the euro that entered the liberated areas. Naturally, the supply and demand rule would be reduced when new amounts of money are introduced. ”

Is the Solution Creating a Central Bank?

The warnings were accompanied by calls to take steps in order to limit the spread of the new currency in the areas controlled by the Syrian opposition, amid attempts to prevent its exchange by some civil activists, according to the assistant of the Minister of Finance in the Interim government. The assistant tackled the issue of replacing the Syrian currency with the Turkish one, especially in the north of Syria since it is open to Turkish territory.

The assistant considered that it is better to replace the banknote despite the disadvantages, difficulties and the opposition of many parties.

While Bakour considered that the most important steps to the non-circulation of currency in the opposition areas is to create a representative of the central bank to regulate financial transactions, supervise the work of cashiers, and discuss the methods of import and export, as well as regulate trade to stabilize markets, through dealing with a basket of currencies, until the end of the regime’s control period.

Bakour called for a “big” raising awareness campaign in all regions not to use the new banknote in exchanges, in addition to a binding decision to save the liberated market.

The assurances of the regime government and the warnings of economists at the same time places the Syrian citizen within the dilemma of an economic policy that increased the difficulty of living conditions on the Syrians, amid anticipations of what will be the economic situation of the country in the coming period, and fears that the new monetary banknote is the beginning of higher prices and increased inflation, and thus an increase in the percentage of poverty among Syrians.

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