The exchange rates of the Syrian pound against foreign currencies continue to collapse, despite the Assad regime’s prohibition of any currency exchange. In addition, the regime has suspended government support for basic materials that citizens need for their daily life under the pretext of supporting the already collapsing economy. The sharp decline in the exchange rate also caused a historical inflation.
Washington and Syria’s Central Bank
Under the Caesar Act, Washington has taken a series of new measures against entities and individuals close to the Assad regime, including the Syrian Central Bank.
The US Department of Treasury considered the last measure against the Central Bank as a support of Washington’s efforts towards accountability and reaching a political solution for the current conflict in Syria.
The US Ministry clarified in its statement that the sanctions targeted the foreign assets office and the Central Bank of Syria in a way that guarantees discouraging future investment in the regions controlled by the Syrian regime, together with a commitment to implement the UN resolution 2254.
The new sanctions’ package is the fifth one since the Caesar Act has entered into force on June 17.
The Syrian regime has been trying to manipulate and escape the EU/US embargo and sanctions that have been increasing since 2011. However, the embargo was tightened particularly under the administration of US President Donald Trump, who imposed Caesar Act on Syria on individuals and institutions that deal with or fund the Syrian regime. It prohibited oil trade and imposed restrictions on investment, which resulted in freezing the assets of hundreds of companies and individuals.
Attempts and Plaudit
In a statement issued Wednesday, Dec. 23rd, the Syrian National Coalition for Opposition Forces welcomed the decision of the US Treasury Department and the new package of US sanctions that were issued after one year of issuing Caesar Act.
An official in the Syrian Foreign Ministry also described the latest measures as “a horrible violation of the principles of international law, which can be classified as war crimes and genocide,” according to SANA, the official news agency.
Pound’s Second Collapse
After a second severe deterioration that started on Dec. 22, the USD exchange rate has reached 3000 S.P. The sudden collapse of the pound was reflected on the markets and trade exchanges, and created a state of confusion regarding the flow of goods and supplies, especially that commercial deals in Syria were frozen due the Caesar law.
Repeated and Accelerating Action
This fall is the second of its kind, as the USD has already crossed 3,000 pounds on June 17, just after the implementation of the Caesar Act. Following, there was a partial recovery as it settled at 2500, then swinging downward and upward due to the attempts of the Central Bank to boost the pound’s value. (Despite the deterioration in the pound’s real value, the Syrian regime maintained the official exchange rate of 1256 against the USD, although the actual rate is higher.)
Since the beginning of 2020, the purchasing power of the local currency has fallen almost three times, while the pound has lost two times its value against the USD.
At the beginning of 2020, the dollar was about 900 – 1000 Syrian pounds, by the end of February it reached to 1050 Syrian pounds, while at the end of March it was 1250, and by the end of April 1300. At the end of May it reached 1850 pounds.
The rapid collapse was at the beginning of June 2020, when the dollar reached 1900 pounds, and only a week after the beginning of the month, the exchange rate against the dollar was 2700 pounds.
Then, from June 10 to June 17, the dollar exceeded 3,000 pounds, but then returned to 2,500 pounds.
Exchange fluctuation dominated the scene and the pound suddenly rose, when the USD reached 2000 pounds in the third week of July, but it regained its previous position to lose value against the USD at the end of July, when the USD reached about 2250.
As August began, the pound’s price was again dampening, with the exchange rate up to 2,300 and down to 2,000, and then it closed at 2,250 as in the previous month. The same situation remained in September until mid-October, when the exchange rate was at 2,500 against USD.
November was different: the Syrian pound exchange rate did not drop under 2,500 against USD. The price of the dollar would remain rising until it again reached 3,000 pounds and then dropped back to 2,650 pounds.
The dollar price against the pound opened in December at 2700, and until the 25th December the rate reached 2920.
Difficult To Predict
Amid the demanding lives and current miserable situation in Syria, the Syrians main concern has become following the exchange rates of the Syrian pound.
The “red” falling indicator has become an indicator of fears and concerns as it will coincide with rise in the prices of basic needs.
“In addition to many factors influencing this decline, including the game of speculators whom the central bank has been pursuing, the new sanctions list has left its negative impact, thereby raising import costs. Therefore, there will be bad impact on local markets,” Jad Abu Maddy, a banking specialist, said in an interview with the „Independent“ (Arabic version).
The expert believes that it will be difficult to predict where this increase in the exchange rate will lead to. He is expecting new policies to deal with this urgency, as the sanctions were not surprising news for the Central Bank. Abu Maddy says it is likely to inject foreign currency to stop the collapse at certain limits and prohibit dealing with it in Syria.
It is noteworthy that such measures were repeated before and they are no more than temporary supporting measures. In June, there were factors that led to stability in the exchange rates, according to the economic researcher Manaf Qouman, among them foreign currencies that Hezbollah smuggled for the Assad regime and to the arrival of Iranian oil tankers to Syrian ports.
That was in addition to the security campaigns on black market speculators and limiting external transfers, to be done through banks only. However, all those measure were temporary.
Factors and Reasons
The reasons behind the collapse of the Syrian pound and the transformation of the country’s economy into a war economy are multiple, and they are mainly three factors, according to a specialist report: Economic, political and administrative
Among the economic factors is the drop in oil prices in the international market, which negatively affected the countries supporting the regime, because their economy greatly depends on oil trade, and that was the reason of suspending Iran’s financial support to the Syrian regime.
Moreover, the Central Bank of Syria does not contain any foreign exchange or gold, though foreign currency reserves and gold is the fundamental basis of national currencies. Besides, the land, sea and air transit revenues are suspended, export traffic are stopped, and they the largest contributor to foreign exchange earnings.
At a deeper level, the reduced production has a direct impact, as the regime is importing essential goods, with foreign exchange purchases taking place, especially in the USD, which increases the demand for it, and thus increasing its price at the expense of the Syrian pound.
In addition, the regime is no more controlling oil, wheat and a number of important strategic commodities, playing a crucial role in the attrition of the Syrian pound.
As for the political factors that dominated this crisis, they are related to the economic sanctions on the countries supporting the Syrian regime, Iran first, followed by Russia. Lebanese banks were the “stores” for businessmen dealing with the Syrian regime to send it foreign currencies; these banks prevented them from withdrawing large sums of money, which greatly created a cash and liquidity crisis.
Moreover, there were the US and European sanctions imposed on key figures in the Syrian regime, and they are considered as Assad’s economic arms, such as Rami Makhlouf, Samer Al-Fowz, Waseem Qatan, and a many officials and businessmen who support the regime form abroad.
Financing military campaigns against opposition forces, and insisting on a military option for nine consecutive years, has robbed the regime of all its economic capacity.
At a parallel level, the declined activity of international organizations, both in opposition and regime areas, has played a role in the attrition of the Syrian pound. Those organizations have been providing grants and opening relief projects in foreign currencies, which was an important resource for hard currency in Syria.
In depth, the growing disagreement between Makhlouf and Bashar al-Assad has led to the suspension of many economic activities that were related to Makhlouf companies. His companies exchanged their capital from Syrian pound to foreign currencies and then transferred them abroad, which increased the demand for USD and the same time the supply of Syrian pound, therefore, the price fell, according to an economic report by the Anadolu Agency.
All those intersections have prompted warlords to transfer their funds abroad before the implementation of the Caesar Act. That was a new pressure factor in the pound’s crisis, linked to fears of escalating tensions in the Middle East, with Iran becoming increasingly vulnerable and unable to support the Syrian economy.
In the third level of factors affecting the Syrian pound, there was the absence of state logic in government institutions, as the Iranian model was imposed in Syria. Syrian government institutions were turned into mere militias that consider themselves as the protector of the homeland. They do not respect law or policy, and do not take into account any orders. The economy became captive to warlords, who made huge fortunes, paralyzed the movement of state institutions and make it unable to make decisions, according to the same economic report.
The Central Bank was at the forefront of paralyzed state institutions, it is unable to make the right sovereign decision; therefore, being unable to address the pound’s collapse is a natural consequence.
Inflation “Overlapping Factors”
Observers highlighted the necessity of focusing on the internal factors, in addition to external, such as the US sanctions and consequences, to interpret the deterioration in the exchange rate, despite the strict governmental measures to prevent trading in foreign currencies in Syria, in addition to criminalizing holders of foreign exchange.
According to a local economic study, “Three Hundred, Pound’s Value against USD” that was released in 2016 and was published by the Independent, the collapse of the pound’s exchange rate resulted in very high inflation.
The specialist in banking affairs, Dr. Ali Kanaan, considered that this inflation is uncontrollable and jumps with a rate exceeding 1200%.
In the context, within the challenges of the economic scene, and the impact of the rise in the price of foreign currencies, the Assad government has stopped the support for many basic commodities, such as fuels and some foodstuffs.
However, economists stressed that the absence of the Lebanese capital, Beirut, from the Syrian economic scene was a fortified wall that hinders Damascus’ backyard active trade.
Assad’s regime has repeatedly focused on several factors that led to the collapse of the pound, the most prominent of which is the economic deterioration in Syria’s neighboring countries, in addition to the US-imposed “Caesar Act” on Assad’s regime in the middle of 2020.
“The reason of the economic crisis is not the sanctions imposed on Syria, but the problem is the money that the Syrians took and placed in Lebanese banks,” the regime’s president said in his latest statement in November.
Recently, the Carter Center issued a report by the head of the Arab economists Forum, Samir Aitta, addressed the multiplicity of US and European sanctions consequences on Assad’s regime since the start of the revolution until the implementation of Caesar Act.
The report asserted that the sanctions inhibited the growth of private banks, even before they were classified on the sanctions list. All of those banks have ties with Lebanese and Jordanian banks, whose relations with Western banks were declined due to their compliance and to avoid risks.
According to the report, the Islamic Golf banks controlled the banking sector in Syria, “the economy has relied on informal transfers from neighboring countries, notably Lebanon and Turkey, leaving the central bank unable to intervene to protect the pound’s exchange rate against the dollar.”
The report pointed at the growth of illicit trade networks controlled by the security agencies responsible for repression.
The US embargo on Syria’s import of oil has led to the regime’s reliance on Iranian and Russian oil supplies, and led all parties, including the opposition, to smuggle oil from ISIS-controlled areas. A serious problem is supplying oil for pumps have emerged, leading to a crisis in getting drinking water, the report said.
The report also linked the Syrian deteriorated economy to the Lebanese crisis, as “the assets of the middle class Syrian businessmen lost in Lebanese banks, including those of Syria’s small and medium-size enterprises” since Syria has long relied on the Lebanese economy.
The financial crisis in Lebanon has negatively affected Syria, where about $30 billion of savings belonging to Syrian small and medium-sized companies’ were reserved, leading to problems in companies’ growth, and obliging companies to focus on projects related food production only.
The decline in meat and wheat production in Syria has led to considerable difficulties in securing food and bread.
The sanctions contributed to a complete halt in fertilizers imports to Syria, as well as a decline in the value of fruits and vegetables, which are no longer growing in the same quantity.
The report confirms that Syria, after the escalating western sanctions, lost its ability to produce or export essential medicines.