Enab Baladi – Jana al-Issa

The value of the Syrian pound began to decline against the US dollar last March, exceeding the value that it maintained for a period of no less than eight months, ranging between 3,500 and 3,600 per dollar.

In recent months, the value of the pound has fallen to break the 4,000 Syrian pound barrier in mid-July, reaching 4,500 Syrian pounds per dollar in mid-August.

Amid the previous adjusting of the value of the pound by means of security measures more than economic ones, the Central Bank of Syria (CBS) justified the recent depreciation of the Syrian pound by speculating on the exchange rate, promising to “put an end to speculators.”

Why is the pound depreciating?

Syria’s various current political, security, and economic conditions indicate that it is only natural that the Syrian pound is currently deteriorating, as economic researcher Zaki Mahshi reckoned in an interview with Enab Baladi.

The researcher explained that the deterioration of the pound is driven by several factors that have accumulated over the past years, adding that the first and most important factor leading to the collapse of the currency’s value relates to the cessation of domestic production as a result of, among other things, the destruction of infrastructure, the sabotage of facilities, corruption, unfair royalties imposed upon people, and capital flight.

Other factors include the sanctions imposed on the Syrian regime and the accompanying difficulties faced by merchants located inside Syria when dealing with the outside world in terms of foreign trade.

Reliance on imports is also considered a factor that increases the burdens of the Syrian pound for the time being, and in the future, as part of the import, especially oil derivatives coming from Iran, is paid on a deferred basis, according to researcher Zaki Mahshi.

The researcher stressed that speculation on the Syrian pound is also an important factor, as many people close to and affiliated with the regime, as well as the Central Bank’s policies, especially in the early stages of the Syrian pound crisis, benefit from speculation on the pound by opening auctions to sell dollars.

Why does the pound stabilize “temporarily”?

Since 2011, a series of depreciation of the Syrian pound has begun, settling in several stages at a certain value and then returning to decline almost twice the value at times.

The last period of stability was recorded in April 2021 for a period of approximately eight months, during which the pound ranged in value between 3,500 to 3,600 Syrian pounds per dollar, after touching a 5,000 pound-to-dollar barrier during the first four months of the same year.

Economic researcher, Zaki Mahshi, explained the stability in the value of the pound from time to time as it is related to several factors, most notably the monetary policies pursued by the Central Bank of Syria as the controller of the local currency, consisting of adjusting liquidity and preventing the withdrawal of funds in Syrian pounds to reduce the fluctuation of exchange rates.

The researcher added that other policies of the Central Bank of Syria on dealing with exchange offices and supporting them to buy dollars at a rate close to that in the black market also contribute to creating temporary stability in the exchange rate, as well as the security factor of conducting security campaigns, random arrests, and media propaganda to control the exchange rate by security methods.

Remittances to Syria, either to families or through international organizations, are important factors for the “temporary” stability of the Syrian pound, said researcher Zaki Mahshi.

Central Bank has no new economic instruments

The Central Bank of Syria accused merchants and black market money changers of speculating on the exchange rate of the dollar, according to an unnamed source who spoke to the local pro-regime al-Watan newspaper on 17 August.

The source considered that traders’ demands for the Central Bank to finance their imports “in the midst of the presence of sufficient basic market needs” is what puts pressure on the pound, asking them to be partners in “supporting their national currency and being satisfied with what the market needs in terms of materials and imports in accordance with the consumer’s actual needs, rather than according to their desire for greater profits.”

Currency speculation is an exchange formula that takes place in the currency trading market and has nothing to do with the movement of commercial exchanges (goods and services).

Speculation includes purchases of a specific currency with the intention of selling it again at an appropriate time when the value of the purchased currency is higher, which brings a quick profit to its owner.

Speculation is not limited to currencies but also includes real estate, futures contracts, and financial derivatives.

Economic researcher Zaki Mahshi explained that the central bank does not have new economic instruments that would completely stop the deterioration of the pound, but it may be able to “temporarily” maintain its current price with its traditional monetary instruments, such as stopping liquidity and tight control over foreign currency transactions and facilitating the arrival of remittances to feed the treasury in foreign currency.

The security tool is also the regime’s primary instrument for controlling the exchange rate. But it is essentially a hacked and corrupt instrument, confirming collaboration between speculators, security personnel, and business owners portrayed by the regime as pro-pound but are, in fact, speculators who are drawing great benefits from the collapse of its value.

What is the future of the Syrian pound?

A report by the state-owned newspaper al-Baath released earlier last week entitled “Exchange Thieves” said that the administrative action taken by the Central Bank of Syria is unable to control the exchange rate unless it is based primarily on other economic actions led by “production.”

The report considered that the administrative procedures of “threatening penalties against exchange rate manipulators, big speculators before the small-time ones” are necessary at this stage, as it can be considered a preliminary stage before production. However, following up solely on small speculators, which is what is currently happening, is the reason for the frequent fluctuation in the exchange rate.

For his part, economic researcher Zaki Mahshi stressed that unless there is a fundamental and explicit change in the previously mentioned factors that led to the depreciation of the pound, such as radical economic reform and political reform and the subsequent entry of foreign investments, the Syrian pound will inevitably continue to deteriorate even further in the future.