Enab Baladi – Jana al-Issa

The deterioration of the Syrian pound against foreign currencies has led to the search for economic solutions to alleviate the impact of this decline, which was represented by escalating inflation rates and the money transfer issues faced by those dealing with the pound.

The Syrian regime’s government has not taken any actual monetary measures in this context, amid repeated calls by officials or experts for its movement to align with the current economic situation’s requirements.

Despite most experts agreeing on the necessity to issue a banknote larger than the currently highest denomination (5,000 Syrian pounds), the Central Bank of Syria has insisted for years on the absence of a need for this, justifying it by stating that issuing a higher denomination is based on studying the reality of the national economy and its monetary requirements in alignment with the growth of domestic production, through its market monitoring and securing the cash circulation needs of all currency denominations.

As an alternative, experts have repeatedly proposed removing zeros from the currency in the past, only to be met with rejection.

Recently, several local websites also reported the Central Bank of Syria’s approach to launching what is called the “New Pound,” which comes after removing zeros from the currency, a claim that the bank denied on the grounds that inflation numbers are not at the “scary” level that necessitates this measure.

Reducing the amount of currency in circulation

In the recent period, the economic expert George Khazam suggested removing one zero from the currency, which does not require the withdrawal of all the old banknotes in circulation and printing a new currency, pointing out that inflation has not reached the stage of “hyperinflation,” which would necessitate the removal of three or more zeros.

The local “Economy Today” website quoted Khazam as saying that removing zeros from the currency is not a solution to the monetary inflation crisis, but rather a solution for the circulation of large sums of money.

The expert pointed out that stabilizing the new purchasing power of the pound after removing one zero from the currency requires the pursuit of a professional monetary and economic policy from market economy experts in the Central Bank, aiming to increase production, reduce unemployment, and various other measures.

Central Bank: No need for such measures

The Central Bank of Syria commented on the proposal to remove zeros from the Syrian currency, stating that changing the currency and removing zeros is not a simple matter, and that several countries have resorted to such means when they suffered from rampant and prolonged and compounded inflation, some succeeded and others failed, and that taking the measure of removing zeros without careful study can drag the country into a spiral.

The Director of Treasury at the bank, Eyad Bilal, in a press statement, said that inflation in Syria is not at a terrifying level, and does not warrant the removal of zeros or the introduction of higher currency denominations, considering that the current highest denomination (5,000 pounds) is sufficient to complete transactions and transfers.

Inappropriate indicators

Removing zeros from the currency is not an economic factor that affects the country’s economic structure but rather a procedure taken by monetary authorities for several reasons, as explained by the economic researcher Zaki Mehshi.

Mehshi believes that now is not the appropriate time to remove zeros, as the success of this procedure requires it to be done in an economic environment heading towards economic growth, less unemployment, and more efficient production processes – conditions that are not currently present in the Syrian economy.

Many countries have resorted to the measure of removing zeros; it has been successful in some and clearly failed in others, leaving a significant impact on inflation figures in those countries.

For example, Turkey witnessed a very successful elimination of zeros in 2005, due to carrying out this process at a time when the Turkish economy was taking off in economic growth, with a decrease in unemployment rates, and a reduction in nominal inflation rates for goods.

On the other hand, the process of removing zeros from the currency that took place several times in Venezuela and Zimbabwe, did not succeed in the absence of macroeconomic stability indicators for these countries, and inflation rates returned to much higher levels than those recorded before the removal of zeros.

Causes of inflation, No solutions on the horizon

Policies for removing zeros can be beneficial when accompanied by other policies supporting the national economy, and it is clear that this is not the case, as the removal of zeros from the Syrian currency would be an isolated measure if taken, and not part of a new economic policy, as seen by Dr. Joseph Daher, Affiliate Professor at the European University Institute in Florence, Italy, and participant in the “Wartime and Post-Conflict in Syria” project.

Daher explained that removing zeros will not solve the structural problems of the Syrian economy, the most prominent being the negative trade balance which puts significant pressure on the Syrian pound, or an improvement in the Syrians’ living conditions and their purchasing power.

High inflation rates are linked to internal and external causes, according to the researcher, most notably the massive devaluation of the Syrian pound, reflecting the destruction of the Syrian economy in many ways, including the tremendous damage in the oil and tourism sectors, both major sources of foreign currency before 2011, as well as the halt of foreign direct investments after 2011, which had amounted to more than $8 billion between 2005 and 2011, strengthening the devaluation of the Syrian currency. Additionally, the enormous destruction in the manufacturing and agriculture sectors led to a collapse of the local productive capacity and a decrease in export volume.

In this context, the state lost major sources of income and was forced to increase its imports to meet the local demand, and the rising need to import foreign products and the devaluation of the Syrian pound led to increased costs of goods and services in Syria. Also, the trade balance remained severely negative, translating into ongoing pressures to buy foreign currencies, especially in the black market, increasing the downward pressures on the Syrian pound. Furthermore, sanctions have increased import costs because many countries and private companies do not want to trade with Syria. If they do, they increase their costs because the country is considered risky, according to Daher.

The researcher added that the financial crisis in Lebanon, in October 2019, significantly affected the situation as Syria experienced a large capital flight during the war, possibly amounting to billions of dollars, difficult to determine, especially since Syrian capital has been outside the official banking system even before the war.

In this context, the Lebanese crisis played a role in the further devaluation of the Syrian pound, particularly after Lebanese banks imposed strict restrictions on obtaining and withdrawing dollars. With the Western sanctions imposed on Syria, Syrian businessmen and traders relied on Lebanon and its banking system to continue their economic activities, especially trade and smuggling.

Additionally, the implementation of the Caesar Act has widened the disinclination of countries to deal with Syria, whether directly or indirectly, and therefore, the generalized sanctions, including the Caesar Act, have increased economic difficulties.

According to a report released on August 10, 2023, Syria ranked third globally in the level of inflation at 238% on an annual basis, after Zimbabwe and Venezuela, according to Hanke’s Inflation Dashboard in several countries, not relying on government statistics.

According to the data, the last official update for inflation in Syria was in September 2019, when it reached 34.50% on an annual basis.

Positive, only with suitable economic conditions

The process of removing zeros from the currency is a positive action if macroeconomic indicators are appropriate.

Among the most prominent positive aspects of this measure is restoring the psychological factor among Syrians who use this currency, though it is only a formal effect that may lead to renewed confidence in the currency, according to the researcher Zaki Mehshi.

Other positive aspects relate to various technical issues associated with alleviating cash transactions, easing problems with ATMs, etc.

Since 2011, the value of the Syrian pound against the US dollar has recorded a significant decline, making the largest Syrian banknote denomination in the market today (5000 Syrian pounds) worth less than half a US dollar, while at the beginning of 2011, the value of the largest denomination circulated (1000 Syrian pounds) was equivalent to about 20 US dollars.

As a result of this large decrease on the one hand, and laws criminalizing transactions in US dollars on the other, as well as the absence of bank account transactions for several reasons, Syrians are forced today to deal in large denominations of Syrian currency, but the amount may seem small when measured in dollars.