Enab Baladi – Zeinab Masri

Over the past few days, news circulated of the Central Bank of Syria (CBS)’s intent to issue a new 10,000 Syrian pound (SYP) banknote into the Syrian market, which the CBS repeatedly denied.

This is not the first time in which the CBS has denied this kind of news. A couple of years ago, the CBS declared the news of the issuance of the 5,000 SYP note untrue and then ordered its printing and circulation in markets.  

Local social media pages circulated news of the CBS’ intention to issue a 10,000 SYP banknote months after it announced the issuance of the 5,000 SYP note in the Syrian market, prompting the CBS to dispel the news.

On 30 October, the CBS governor, Mohammed Issam Hazima, stated that there is no need to issue new denominations, especially that the new electronic payment system under work would significantly reduce the circulation of banknotes in markets. 

Hazima noted that work continues to maintain the stability of the Syrian pound’s exchange rate and confront inflation.

The CBS’ denial of the new 10,000 SYP note is not new. About a month after it announced the release of the 5,000 SYP note on 24 December 2020, the CBS dispelled news claiming preparations to issue a new denomination of 10,000 SYP. 

The CBS governor described the news as false rumors aiming at undermining trust in national currency for the benefit of speculators. He pointed out that the issuance of new denominations is based on a study for the national economy’s reality and monetary requirements to be consistent with the domestic production growth through following market movement and securing traders’ needs to all notebanks. 

Between negation and affirmation, the CBS issues new banknotes 

After the CBS’ former governor Dureid Dergham announced the issuance of the 2,000 SYP note in July 2017, rumors spread that the CBS will release a new denomination of 5,000 SYP, prompting the bank to repeatedly deny the news, as the law governing its work did not allow it to issue this note at the time. 

In May 2018, the People’s Assembly of Syria announced a new draft law allowing the CBS to issue a 5,000 SYP banknote. The draft stipulated the amendment of Article 16 of the Central Bank law, enabling it to issue notebanks up to 5,000 SYP.

About two years later, a rise in the general price level resulting from the Syrian pound’s black market exchange rate reaching nearly 3,000 against the US dollar prompted the CBS to release the 5,000 SYP note for market circulation. The new note was printed two years before its circulation to meet the country’s cash trading needs.

The CBS released a statement justifying the printing decision of the new 5,000 SYP note. The statement read that the move came to facilitate cash transactions, reduce the costs of printing new banknotes in smaller denominations, confront accelerating inflation, ease the burden of circulation, and replace the worn and old notes.

Financing budget deficit by printing new banknotes 

Syrian economist and researcher at the Jusoor Center for Studies, Khaled Turkawi, told Enab Baladi that the Syrian government’s denial of the 10,000 SYP note could not be taken seriously, for it dispelled the news of printing a 5,000 SYP banknote and then released it two years later. 

Turkawi added that the CBS’ denial is not related to the pressure of the Syrian street but is more likely to cover up leaked information from its halls. 

The researcher noted that printing the new denomination of 10,000 SYP could reduce the need for smaller notes and their printing costs, but it would definitely cause prices to soar.

Turkawi added that the CBS would likely issue the 10,000 SYP note during the coming year to reduce the budget deficit of 2021, which was the largest budget since 2011 in terms of inflation indices, leading to increased expenditures and money supply in markets. 

On 20 October, the Higher Council for Economic and Social Planning of the Syrian government approved the initial allocations for the draft state budget of 2022 with 13 billion SYP, in both the investment and commercial sectors, with a deficit of approximately 4,118 billion SYP.

The Syrian Minister of Finance, Kinan Yaghi, stated that “The estimated deficit in the draft budget will be covered with 600 billion SYP borrowed through treasury bonds, about 500 million SYP from external resources, while the Central Bank of Syria will cover the rest as allocations taken from the reserve in the bank.” 

Following the issuance of the 5,000 SYP note, which came a few months after the announcement of Syria’s 2021 general budget, officials of the regime government affirmed that the CBS had not resorted to deficit financing and that the new denomination of 5,000 SYP would be introduced, while withdrawing worn-out currency notes from the market. 

The regime’s government claimed that the pound’s exchange rate would not be affected by the new banknotes, but it did fall in value and hit record lows against the US dollar, approaching 5,000 SYP for every 1 USD.

Deficit financing may be done by printing new currency notes without the presence of goods like gold, oil, and other valuable products, causing inflation, devaluation of local currency, price increase, and decreased purchasing power.

Deleting zeros or printing new banknotes?

As talks of a possible new currency note rose, some voices demanded the Syrian government to cut zeros from the local currency instead of printing banknotes with more zeros. They argued that the omitting of zeros would help reduce the number of printed notes, ease accounting operations, support the Syrian pound against hard currencies, and restore citizens’ trust in their currency.   

Last March, the government newspaper al-Baath published an economic analysis calling on CBS to study the feasibility of issuing new large banknotes instead of discussing the reasons behind this issuance. 

Researcher Turkawi explained that the deletion of zeros from the currency is a purely monetary technical issue that requires a subjective decision and a currency control capability; otherwise, the new banknotes would experience a double reduction in value, making such a step unfeasible in the time being. 

The replacement of old currency and the deletion of zeros operations are usually done in economically stable countries, for they require security stability, stabilized institutional work, and a reasonable level of domestic product.

The dropping of zeros is ineffective and does not enhance the currency’s value and purchasing power or reduce inflation rates. Instead, it costs the government huge money to print new banknotes.