Central Bank of Syria Fights To Stabilize Currency

Syria’s Central Bank is working to stabilize the war-ravaged country’s flailing economy and fluctuating currency.

al-monitor An employee seals bags of Syrian pound notes at the Central Bank of Syria in Damascus, April 23, 2013. Photo by REUTERS/Khaled al-Hariri.

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central bank of syria, us, syrian

Jun 20, 2013

Adib Mayaleh, governor of the Central Bank of Syria (CBS), made haste to announce the adoption of governmental measures to pull the brakes on the Syrian pound (SYP) as it slumped dramatically against the US dollar. When the dollar exchange rate skyrocketed against the SYP, Mayaleh announced a $1 billion credit line from Iran to finance Syrian imports, adding that other measures would shortly follow.

On June 17, the SYP depreciated to a record low, with a decrease of around 20%. In some areas, one dollar equaled 225 SYP, even though the market price continued to fluctuate between 185 and 190 SYP per dollar. This led exchange bureaus to refrain from selling dollars. Similarly, the prices of gold increased over a 24-hour-period from 6,000 SYP per gram to 74,000 SYP, while jewelers refrained from selling gold as well.

As the exchange rate quickly soared to more than 170 SYP per dollar — the price that was recorded two days ago — traders were pushed to alter the prices of their goods. One wholesaler voiced his discontent to As-Safir, saying that customer complaints were becoming unbearable, yet the situation is inevitable.

A chocolate and gifts trader who nervously talked over the phone, with clients waiting, alleged that the fluctuation of prices had been inflicting major losses on his business. However, the majority of his clients did not believe these claims. One said, “How could he possibly lose if he is selling the products that he bought yesterday, a month or maybe a year ago, at the current prices?” Nonetheless, she proceeded with her shopping. Another client complained as she bought a gift for a newborn: “The price of this product increased by 70 SYP in one minute.” She continued, “As I moved the gift from the shelf down to the cashier counter, the price increased by 70 SYP. How is that even possible?”

These quick price changes led the citizens to shop hurriedly in an attempt to avoid further financial losses. Traders in well-known markets, such as the Shaalan market, noticed a surge in last-minute shopping due to price changes.

However, these concerns are minimal in comparison to the challenges posed by the increase of the value of the dollar against the SYP. Syrians still recall an experience three decades ago, when during the 1970s financial crisis that lasted until 1983, the exchange rate climbed sharply from 4.6 to 40 SYP per dollar. There is not much difference between then and now. The value of the SYP slumped from 46 to 200 per dollar, and the crisis is on the way to its nadir.

Some economists note that this slump provides enough liquidity to pay the salaries of the employees, but, at the same time, constitutes a heavy burden for the treasury — which buys energy products, wheat and other goods in hard currency — not to mention the continuous collapse of the SYP’s purchasing power. However, no one can offer a clear explanation for this collapse. The recurrent answer is “the war,” but the details have yet to be uncovered.

Mayaleh did not hide his concerns about the fall of the SYP’s value. He seized the opportunity during the signing of the Iranian credit line to affirm that the state will take measures to prevent the crisis from worsening. As part of these measures, the CBS, after receiving the requests of the banks, will provide them with foreign currency to fund the market needs of imports according to a price that is yet to be decided. This will ensure a fair pricing of products and stabilize the exchange rate of the SYP.

According to the Syrian Arab News Agency, the CBS immediately pumped foreign currency through the exchange bureaus and the Commercial Bank of Syria at reasonable prices to fulfill the needs of citizens. The foreign currency will be sold according to the regulations in force, which stipulate a ceiling of 1,000 euros ($1,325) per month.

Mayaleh says that the intervention will restore the normal exchange rate, explaining that the government has set forth the necessary mechanisms to activate the $1 billion dollar credit line that was granted with simple terms. The credit line is supposed to ease the pressure off the foreign-currency market, and consequently off the SYP.

Mayaleh was optimistic about restoring the normal exchange rate, assuming that the upsurge coming to pass is justified. Mayaleh accused some traders of “exchange rate speculation and taking advantage of the citizens' and traders’ need for foreign currency.”

As part of the measures adopted yesterday, the CBS sold $8 million to the banks to finance imports, and 50 million euros ($66.27 million) to companies and exchange bureaus for non-commercial operations. Mayaleh considered the “fall of the exchange rate by 30 SYP an indicator that the increase of its prices is unreal and unjustified.”

In the same context, 21-carat gold was recorded at about 7,400 SYP per gram, while 18-carat gold reached 6,343 SYP per gram. The price of 22-carat gold lira amounted to 62,800 SYP, leaving the 21-carat gold lira at 60,000 SYP.

According to the head of the Jewelers Association, Ghassan Jazmati, the sudden upsurge in gold prices was surprising yet inevitable, given the increase in the exchange rate of the dollar in the black market. He noted that the jewelers of Damascus had stopped selling gold, preferring to wait until the dust settles and the fluctuation of the exchange rate comes to a halt.

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