Syria Today | Floating the Syrian Pound

In an attempt to deregulate the foreign exchange market and help to ease pressure on the Syrian currency, the government has started introducing a managed float of its exchange rate, Governor of the Central Bank of Syria Adib Mayyaleh told the Financial Times on January 19.

“During the last 10 days the exchange rate jumped a lot; we are now in a period of controlling [that jump],” Mayyaleh said.

The new decision, issued by the prime minister’s office, allows local private banks to price currencies freely based on supply and demand in the market, ending a five-decades-old policy of restricting all foreign exchange trading to government-regulated prices.

Before protests began in March 2011, the Syrian currency had been traded officially at a fairly stable exchange rate of SYP 47 to one dollar between 2006 and March 2011. But since the crisis began, there has been a surge in demand for dollars as Syrians contemplate an increasingly uncertain political and economic future.

This has pushed the black market rate up to about SYP 74 to the dollar, while the central bank rate has risen to just SYP 57.7. This has also translated into a 20 percent inflation rate, Damascus-based economist Jihad Yazigi, author of the Syria Report, told Inter Press Service (IPS) on January 27. However, the official inflation rate for September 2011 stood at a mere 3.38 percent, according to the Syrian Central Bureau of Statistics (CBS).

The Central Bank’s plan aims to increase the flow of foreign currency in the system, which in turn will lead to devaluation of the Syrian Pound. Banks and money traders that had been reluctant to dispose of their foreign assets at the official prices set by the Central Bank are now expected to start selling foreign currencies again and help increase supplies in the market. “We know banks have sufficient foreign currency and want to sell it,” Mayyaleh said.

However, the regulated rates of the Central Bank will continue to apply to the sale of those currencies required for the import of key commodity items. Also, the supply of foreign currency for personal use is still governed by heavy restrictions. Individuals can only buy USD 2,000 a year without special permission.

The impact of the government’s decision was almost immediate, with the value of the Syrian Pound rising to around 66 pounds per US dollar on January 22. The total assets of Syrian banks currently amount to SYP 454bn (USD 7.8bn) and are divided among 14 private and six state-owned banks, according to private daily Al-Watan on January 23.

“The government’s move to float the exchange rate comes too late, but it is a necessary one,” economic journalist Munir Alwadi wrote in the weekly magazine Bourasat wa Aswak on January 28. Alwadi considered it a temporary procedure, saying that “at the end of the crisis, things could simply return to normal.”

However, a member of the Damascus Chamber of Commerce, Bashar al-Nouri, described the floatation move in such circumstances as a big mistake. “The Central Bank should monitor the market and pump hard currency into it to control prices. Otherwise [the exchange rate for] the dollar would reach SYP 100 as a result of speculation,” privately-owned website Aliqtisadi reported on January 29.

Indeed, on January 11, the minister of the economy said that the government’s priority would be to preserve the country’s foreign reserves, which was considered by many analysts to be a clear hint that the pound could not be defended anymore.

However, Mayyaleh denied that Syria has any liquidity problems and said that any concerns about the strength of the monetary system are nothing but “fabrications”. “We have a real economy and an agricultural industry,” Mayyaleh told the Financial Times. “A lot of Arab countries envy us because of our production of wheat, barley, grain, vegetables, and fruits. And we can live without salmon.”