Syrian Pound: Between Inflation and a Hard Place

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A banker carries a load of money as he walks past an image of the Syrian President Bashar al-Assad at a bank in the capital in Damascus on 28 February 2012. (Photo: AFP - Anwar Amro)

By: Wissam Kanaan

Published Monday, June 25, 2012

It was rumored months ago that the Central Bank of Syria printed currency that does not abide by certain specifications and is only fit for trading internally or in Lebanon at the most. Since then, the Syrian public have been holding their breath fearing the Syrian pound’s sudden collapse after it lost about 40 percent of its value since the political crisis began mid March 2011.

Indicators inside Syria - the economic pressures that citizens are under and the persistent doubts about the regime’s ability to maintain economic cohesion - have led many Syrians to believe the rumor that a new currency with no real value was printed by the government and put into circulation in the Syrian market after Switzerland, abiding by the sanctions imposed on the Syrian regime, refused to hand the Syrian authorities banknotes they had printed.

This rumor snowballed even though Syrians did not face any noticeable problems trading with their local currency or exchanging it outside the country.

The rumor escalated, saying that the Syrian government printed currency in Moscow. It was alluded to in more than one official announcement about the support that the regime receives from Russia, including economic support. This was reinforced by the Syrian Finance Minister, Muhammad Jilani’s most recent visit to Moscow.

In the meantime, the rumor of the internally-traded currency, or the counterfeit one as some Syrians like to call it, returned to the forefront, focusing on the 500 Syrian pound banknote. Some went so far as to link it to the currency printed in Russia arguing that that too does not conform to specifications.

A few days ago the governor of the Central Bank of Syria publicly denied the rumors and what news agencies have published about Syrian bankers, namely that the Central Bank of Syria had printed new currency and put experimental amounts of it in circulation in Damascus and Aleppo. The governor said that damaged banknotes were replaced with new ones and confirmed that money was indeed printed but only to replace the damaged banknotes.

A member of the Damascus Chamber of Commerce board of directors, who preferred to remain anonymous, told Al-Akhbar: “We should not cast doubt on the Syrian currency. No Arab or foreign country has refused to exchange the Syrian pound which is a local and not a global currency so it is not traded a lot outside the borders of the Syrian Arab Republic.”

He also pointed out that: “some spoke of technical mistakes in some of the 200 and 500 Syrian banknotes but this claim has not been verified on the ground. No one proved it and it has not affected the stability of the Syrian pound or the volume of trade in it, at least with Arab countries like Lebanon and Jordan. Syrian merchants have been able to trade with these countries using the local Syrian currency.”

Countries do not print money without backing it up with commercial operations in order to prevent monetary inflation and a significant devaluation of the currency.

Syrian journalist and economic analyst, Adnan Abdelrazek told Al-Akhbar that it is impossible for any country in the world to print untradeable bills because the currency is not only for trading but it has to do with the stature of the state.

The Syrian analyst says: “Printing counterfeit banknotes is befits gangs and the mafia. No state would think of doing something like that, especially not Syria which is clearly under assault these days and the economic sector can not be isolated from this assault. So why would the government do its adversaries such a great favor?” adding: “Plus, it is known that in the 1980s and at other critical moments during which the Syrian economy faced major hurdles, the government resorted to Asian countries like Japan and India to print its money.”

As for the new currency that was printed in Moscow, Abdelrazek says: “It hasn’t been put into circulation yet. The Syrian government was reticent about the news spreading about the printing money in Moscow for a few days out of concern for the psychological impact which contributes immensely in determining the rate of exchange.”

Abdelrazek explains: “There are many questions raised that are of utmost importance. Should, for example, the surplus liquidity of Syrian currency present in the markets of neighboring countries be collected? Especially given Syria has already been stung once in terms of its currency which was targeted from the very beginning of the crisis leading to a big loss in its value against major currencies.”

He adds: “The exchange rate of the US dollar reached over a 100 Syrian pounds but the Central Bank interfered directly injecting blocks of foreign currency which brought the exchange rate close to its average.”

Abdelrazek discusses the danger besetting the Syrian pound because there are six exchange rates for the Syrian pound and this is a sign of the weakness of the economic policy, particularly monetary policy.

In this context, Abdelrazek criticizes the policy of printing new banknotes as it will hurt in terms of purchasing power. The bank has limited blocks of US dollars and all the parties that are at odds with the Syrian regime expect this money to run out. They are actually counting on it, which in turn might lead to the collapse of the Syrian pound.

Even though the governor of the Central Bank of Syria appeared to reassure everyone that the currency blocks that will be injected in the market will be equivalent to the blocks that will be withdrawn, Abdelrazek believes that such a claim is meant to reassure people but is unrealistic. He says: “Perhaps more currency was printed than the amount that will be withdrawn from the market. I had hoped it is part of a plan to withdraw the currency from somewhere other than its markets in order to adjust its performance.”

Abdelrazek points out that the crisis revealed to Syrian citizens the magnitude of some of the mistakes committed by some decision-makers in the monetary sector in Syria and it is the citizens who pay a heavy price for these rash decisions that proved ineffective.

The economic expert adds: “The government should be careful because if it does not pay attention to public opinion and fulfill the people’s needs, the people will use it to put out the fire of economic depreciation. If it is ahead of the people and devises plans that surpass their demands, then the Syrian citizen will be part of a tight strategic plan that might pull Syria out of this crisis.”

This article is an edited translation from the Arabic Edition.

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