Enab Baladi – Jana al-Issa

With the escape of the former regime’s president, Bashar al-Assad, in the early hours of December 8th, a significant phase of change began in Syria, including aspects related to institutions, decisions, and more.

The potential change may include altering the print of the Syrian currency, which features images of al-Assad across all its denominations. However, such a change may currently face numerous obstacles, especially technical ones, primarily fiscal, due to the economic impact on an already weakened economy.

Enab Baladi seeks to gather the opinions of economic experts regarding the economic and technical feasibility of changing the shape of the Syrian currency after the fall of the regime and its market impact under current conditions, highlighting several recommendations that should be followed if such a decision is made to ensure that the economy is not adversely affected.

Sovereign decision

Karam Shaar, the director of the Syrian program at the Syrian Observatory of Political and Economic Networks and a doctor in economics, stated that the decision to change the print of the Syrian currency is a 100% sovereign decision. It comes as an order from the central bank, which is currently controlled by the caretaker government, and there are many misconceptions in this context.

Shaar clarified in an interview with Enab Baladi that one of those misconceptions is that if the state wishes to change the currency, it must have coverage from foreign currencies and gold. He added that this practice has ended in every country worldwide since the 1970s.

Additionally, there are some who believe that printing currency must involve the International Monetary Fund or the World Bank, which is not accurate, as it is a sovereign decision, according to Shaar.

The economist confirmed that if a decision is made to change the currency print, it should only involve printing money in a manner that meets global specifications, making it difficult to counterfeit. He explained that no international institution verifies the prints and their compliance with specifications; this matter solely falls under the state’s purview.

Shaar pointed out that the decision is currently in the hands of the caretaker government. He considered that the most pressing decision at this stage is to prevent the circulation of foreign currencies like the Turkish lira and rely primarily on the Syrian pound in transactions across the country.

According to the researcher, relying on the pound will improve its stability against foreign currencies, as the presence of multiple currencies in different regions leads to confusion and waste.

Numerous obstacles

Economic researcher Rasha Sirop pointed to several significant obstacles faced by the process of changing or replacing the currency.

Dr. Sirop explained in her interview with Enab Baladi that aside from the complicated conditions of the current unclear transitional period and the continued international sanctions on Syria, there are substantial barriers to changing or replacing the currency.

The challenges include understanding the amount of local liquidity and international reserves. Sirop noted that for years, monetary policy has been divided among areas of control, which has reflected in the fragmentation of cash liquidity, weakening the ability to predict the current size of local liquidity and international reserves, especially since the Central Bank of Syria (CBS) has not published or announced various monetary data, including “M1,” “M2,” and the monetary base, nor is there a known amount of reserves at its disposal.

Additionally, there are no estimates of the dollar liquidity and hard currencies that were at the disposal of the Syrian Salvation Government (SSG), particularly the Turkish lira in conjunction with the dollar, which were the two currencies used in financial transactions in northwestern Syria.

The same applies to the dollar liquidity with the Central Monetary and Payment Office in the regions controlled by the Autonomous Administration of North and East Syria (AANES).

The second challenge, according to the researcher, is the deterioration of the economic situation in all Syrian regions, albeit with relative differences, as the majority of cash liquidity exists outside the banking system, hampering any government’s ability to control it.

Required economic measures

Dr. Sirop asserted that the decision to change the currency is not merely a technical procedure but rather a strategic decision requiring meticulous planning as part of a set of proposed economic measures to ensure that the economy remains largely unaffected.

Changing the currency, according to Sirop, could lead to increased inflation and a decline in real economic growth. Therefore, the change should not occur as a separate, independent action from comprehensive reform packages in monetary policy, such as restructuring banks, unifying their operations across all Syrian territories, developing monetary policy tools, enhancing regulatory oversight of the banking system, and implementing financial reforms focused on directing public spending toward productive investments, as well as structural reforms of the economy designed to encourage investment, diversify the economic base, and reduce dependence on imports.

The researcher believes it is also crucial to undertake two separate measures that will help achieve reasonably acceptable returns from the decision to change the currency. She considers that without establishing an economic policy aimed at enhancing productivity, utilizing resources, and managing revenues efficiently, the process of change will not help direct the economy positively; on the contrary, making such a decision could have economic effects that are more severe than before.

The first measure involves ensuring sufficient foreign currency reserves, which requires activating economic diplomacy and diligently working to lift international sanctions, enabling the Syrian economy to attract foreign investments and obtain loans on favorable terms from international institutions and states supporting Syria in its new government.

Moreover, the state must ensure control over its economic resources across all Syrian territories, especially oil resources, which are the primary source of foreign currency.

A risky step

Changing or replacing the currency may help address the issue of cash liquidity shortage in the short term, as explained by Dr. Rasha Sirop. However, in the medium to long term, such a decision could lead to further monetary instability that requires a degree of financial stability based on sound fiscal policies implemented concurrently (if not prior) to this decision. The lack of adequate supportive policies will inevitably lead to the loss of the new currency’s credibility, which may be difficult and costly to restore later.

Thus, changing the currency before ensuring political stability and lifting international sanctions on Syria is considered a risky step, according to Sirop, who believes that proceeding without sufficient financial coverage may lead to rampant inflation and a rapid depreciation of the currency, exacerbating the already acute economic crisis.

These measures also increase the monetary mass in the economy without real production or export support, potentially exacerbating chaos in the monetary market and increasing demand for foreign currencies.