Enab Baladi –Wasim al-Adawi
The Syrian pound’s exchange rate against the US dollar reached 14,500 for buying and 14,560 for selling in Damascus and several Syrian governorates on Wednesday, June 10, according to SP Today, after fluctuating around 14,000 pounds at the start of June. The movement reflects a new decline in the value of the Syrian pound.
The decline comes as the Central Bank of Syria has kept its official bulletin for the pound’s exchange rate against the dollar fixed since April 26, at 11,250 pounds for buying and 11,350 for selling, equivalent to 112.5 and 113.5 new Syrian pounds.
The gap between the parallel market and the official rate therefore stands at around 3,000 to 3,300 pounds per dollar, or more than about 25%.
What Are the Reasons Behind the Syrian Pound’s Decline?
Syrian academic, economist, and financial expert Dr. Mohammad Faqih told Enab Baladi that the main reasons behind the decline in the value of the Syrian pound include:
- The continued gap between the official rate and the black market rate, which pushes citizens to sell dollars to exchange companies and the black market instead of using official banking channels.
- Higher demand for dollars for import purposes, caused by the expansion of imports, which increases the need for foreign currency and therefore raises demand for the dollar against the pound.
- Lower export levels as a result of weak production, which means there are no foreign currency revenues and creates an imbalance between exports and imports.
Dr. Faqih said the Syrian pound’s decline against the US dollar is also linked to increased burdens on local production and higher operating costs, which increase demand for foreign currencies as a store of value.
The approaching end of the currency replacement process in late July has also created a state of anticipation in the markets. This has increased speculation on the Syrian pound, both the new and old versions, and raised demand for the dollar, amid the failure of the official rate to become the reference rate for daily transactions.
Psychological Speculation and Market Expectations
The Syrian economist explained that the presence of an official Central Bank rate and a different black market rate creates uncertainty among investors and traders, encourages speculation, and pushes people to hold dollars instead of pounds.
Dr. Faqih criticized the lack of clarity in the Central Bank of Syria’s current monetary policy. He said the market is still waiting for a clearer vision on managing the exchange rate and monetary policy after the changes to the Syrian currency and the cash replacement measures, which pushes market participants to hedge in dollars.
In fragile exchange markets, expectations play a major role, the financial expert said. In an environment and markets dominated by rumors and ill-studied banking decisions, traders and citizens expect the dollar to continue rising, increasing demand for it as a way to preserve value. This accelerates the decline of the local currency even before new economic factors appear.
The expert did not rule out that security and political developments in the region could affect the movement of funds, trade, and investment. Market observers said recent regional tensions contributed to higher precautionary demand for the dollar.
Inflation and Loss of Purchasing Power
“Whenever prices rise locally at a faster pace than production growth, the purchasing power of the pound erodes,” Faqih said. Individuals and companies then increasingly turn to foreign currencies or other assets to preserve value, which also creates pressure on the Syrian pound’s exchange rate against the dollar.
He said the dollar’s rise to more than 14,500 pounds is not the result of a single event, but reflects accumulated structural imbalances, including:
- Weak production.
- Declining exports.
- Limited investment.
- The national economy’s reliance on imports and external remittances.
For that reason, Faqih believes that stabilizing the Syrian pound’s exchange rate in the long term requires increasing foreign currency resources and stimulating local production, more than relying on short term monetary interventions.
Syrian Pound Decline Pressures Markets
Syrian markets also saw a new wave of price increases in mid-April, coinciding with the dollar’s rise in the parallel market to around 13,350 Syrian pounds. This was reflected directly in the cost of basic goods, amid noticeable differences between governorates.
The increase in the dollar’s price at the time came as the gap between the official and parallel rates continued. The Central Bank of Syria then kept the exchange rate fixed at 11,100 Syrian pounds, while the dollar continued to record higher levels in the actual market.
Economist Alaa Baladia told Enab Baladi that the rise in the dollar exchange rate was due to the continued decline in local production. He said the closure of industrial facilities, such as some ceramics factories recently, pushes the market toward greater reliance on imports.
He explained that this reliance increases demand for foreign currency, since import operations are carried out in dollars, which is reflected directly in the exchange rate.
Proposals to Support the Syrian Pound
Speaking about practical ways out, Dr. Ali Mohammad previously told Enab Baladi that there are several basic steps to improve the value of the pound:
- Preparing and repairing Syrian oil wells to reduce the import bill, especially amid the global rise in oil prices and regional tensions that raise the cost of the bill and drain foreign currency.
- Adopting policies that enable the import of raw materials used in manufacturing and prepare infrastructure, in order to reach production that is sufficient for the local market and secure an “export surplus” that restores balance to the national currency.
