Enab Baladi – Jana al-Issa
The Syrian pound fell this week to a new record low on the black market as it cost close to 6,200 to buy one dollar on the street.
The Syrian pound’s tumble that has hit all life activities began with the eruption of the Syrian revolution in 2011 and was severely affected by numerous circumstances like the Lebanese crisis, the US sanctions, and the regime’s drug trade.
The 5000-banknote, Syria’s largest currency denomination, is worth less than one dollar in the black market, while the value of the largest banknote denomination offered in early 2011 (1000 pounds) was equivalent to about 20 dollars. The pound had traded at 47 to the dollar before 2011.
Today, Syrians are forced to trade cash denominations with a large amount of Syrian currency, but the amount may seem normal when measured in dollars as a result of this record low on the one hand and the laws that criminalize dealing in dollars on the other hand, in addition to the absence of dealing with bank accounts for several reasons.
A few days ago, a video recording was circulated on social media of a Syrian man transporting 100 million Syrian pounds (then 20,000 dollars), in a private truck, in reference to the significant depreciation of the pound and the need to use a vehicle to transfer an amount that is easily transferred in other countries, or through a bank account, a solution that is not considered available to all residents of Syria.
All this money worth less than $20k (100m S.P., each pack 7,5m).
BTW #Syrian|s need handbag full of money of Syrian Pounds for their daily purchases because #Assad is criminalizing foreign currency and ready to jail people for having $100 in cash.#AssadFailedState #SyriaNotSafe pic.twitter.com/t7yOESQrRY
— Mohamed Al Neser (النسر) (@M_Alneser) November 30, 2022
Residents of regime-controlled areas suffer from confusion when receiving their remittances. Nowadays, to receive only about 500 dollars (about 3 million pounds), you need to count at least 600 banknotes (considering that the 5000 banknote is the largest banknote currently) to make sure it is correct.
Khaled, a 62-year-old retiree based in Homs city, relies on his sons’ money transfers. He told Enab Baladi that he receives every month a remittance ranging between 200 and 400 US dollars, but he receives it in Syrian pounds due to the criminalization of dealing in dollars.
Khaled added that every time he receives a transfer, he is forced to go in his car, which increases the burden of his expenses, as he cannot carry the amount in his pocket, in addition to his need for a safe place to count his money away from the place of the transfer office for fear of being stolen there.
He explained that he had received his monthly transfer more than once through the black market transfer offices. However, despite the fact that its exchange rate is better than the exchange rate of the regular remittance offices of al-Fouad and al-Haram companies, it is preferable to receive from the regular offices because the method of delivering remittances through the black market often takes place on the streets, which sometimes attracts the attention of passers-by, especially in the case of large sums.
Syrian pound notes (Enab Baladi)
“100,000-pound note” can be circulated
The director of the Syrian program at the Observatory of Political and Economic Networks, Karam Shaar, sees that there is a real physical problem that transporting large sums requires fuel or, for example, large bags that bear risk, which certainly leads to a limitation of economic activity.
In order to end the circulation of a large volume of banknotes in Syria, which currently confuses people, the economist told Enab Baladi that there is a need to make two changes mainly the first is to circulate a banknote with a large denomination and the second is to further facilitate bank transfer transactions.
According to Dr. Shaar, the first solution is that offering the new monetary category should be for a much larger category than what is available; for example, in 2011, 20 USD was equivalent to about 1,000 SYP, while today it is equivalent to about 120,000 SYP, which indicates to the need for a banknote of at least 100,000 SYP.
On the other hand, facilitating dealing with bank transfers, as is the case in most countries of the world, can also reduce dealing with a large amount of cash. Such a solution seems “difficult” at present in Syria, Shaar added.
The culture of banking transactions in Syria is “almost absent” due to the laws imposed by the regime’s government, such as a specific daily withdrawal ceiling on the one hand and the deterioration of the pound’s value on the other hand, which will lead to the loss of the value of money if it is kept in banks in a currency that is constantly declining.
Some electronic transactions in this context are also considered unavailable, due to the absence of infrastructure and software, amid almost daily problems that residents of Syria suffer from related to poor access to electricity and the Internet.
Larger pound notes need to “study requirements”
In December 2021, the Central Bank of Syria (CBS) issued a 5,000 Syrian pound note, although it denied that it had been “printed” several times before that, and after that, several media reports spoke of the regime’s intention to issue the 10,000-pound note for circulation, but the bank denied this several times as well.
The Central Bank justifies that issuing pound notes is based on studying the reality of the national economy and its requirements from the monetary side in line with the growth of domestic production through its follow-up to the markets and securing trading needs of all denominations of banknotes.
After the 5000-pound-note, which came a few months after the announcement of the general budget for 2021, the regime’s officials confirmed that the Central Bank did not resort to deficit financing and that the introduction of the new currency will take place with the replacement of the worn-out currency in circulation.
The government bet at the time that the exchange rate would not be affected by the new pound notes, but the pound fell against the dollar and reached record lows, touching the barrier of 5000 pounds to one dollar for the first time in its history at the time.
Deficit financing has several forms, including the government resorting to issuing new notes without having a return for this cash (gold, oil, production), which leads to inflation, devaluation of the local currency, higher prices, and a decrease in the purchasing power of citizens.
Syrian pound notes (Enab Baladi)
Theoretically no effects, in practice inflation will increase
Economist Dr. Karam Shaar told Enab Baladi that in order to determine the effects of issuing new pound notes, a distinction must be made between the theoretical effects in principle and the effects on the ground.
In terms of economic principles, issuing new pound notes does not have any inflationary effect as long as the equivalent of smaller monetary denominations will be withdrawn from the market because the monetary mass in circulation will remain constant.
But in reality, Shaar explained that this matter has very limited inflationary effects due to psychological factors because many are convinced that introducing a new monetary currency will have inflationary effects, forcing many in this case to get rid of the Syrian currency.
In addition, the cash equivalent is not withdrawn from denominations smaller than the currency that will be offered in Syria, which means that the effect will be inevitably inflationary due to the increase in the currency in circulation, regardless of the new pound note that enters the circulation.