False improvement and speculation: What is happening to the Syrian pound?

PARIS — Syrian markets are experiencing instability in the prices of basic goods as the black market exchange rate of the pound fluctuates sharply, while the Central Bank of Syria takes a hands-off approach. 

“The situation is getting worse. The size of a loaf of bread has shrunk and its price has gone up,” Umm Wael Salim, who lives south of the Syrian capital Damascus, told Syria Direct. 

The weight of a bundle of bread—a staple food item in Syria—has fallen from 1,500 grams to 1,150 grams. Its price, in the black market, is up from SYP 3,000 ($0.20) before the Assad regime fell on December 8, 2024, to SYP 4,000 (between $0.40 and $0.54, depending on the exchange rate, which ranges from SYP 7,500 to SYP 10,000 to the US dollar). 

The Central Bank of Syria shifted course after the regime fell, attempting to close the gap between the pound’s official exchange rate and the black market rate. Official bulletins set the pound at around SYP 13,200 to the dollar, while the black market rate stood at SYP 7,200 at the start of February. The gap between the two rates is wreaking havoc in markets, despite an overall increase in the value of the pound. 

 ‘Incomprehensible’ policies

On Wednesday, the pound stood at SYP 10,200 to the dollar at the black market rate, while its official price still stood around SYP 13,200. “Stabilizing the exchange rate, allowing dealing in foreign currency and canceling laws and decrees criminalizing use of the dollar” should have reflected “positively on the market,” but an “unclear” monetary policy has had the opposite effect, former Minister of Economy Lamia Assi told Syria Direct. 

Refaat Amer, an academic and economic researcher based in Sweden, described the central bank’s current policies as “strange and incomprehensible.” Sharp exchange rate fluctuations, without government intervention, “harm both the producer and consumer,” Amer told Syria Direct. The current hands-off approach “does not stimulate investment, and only serves currency speculators at the expense of the majority of the poor Syrian people,” he added. 

“The central bank’s policy of restricting liquidity, imposing restrictions on bank withdrawals and not intervening to control the exchange rate and curb illegal speculation has fueled speculative activities,” Amer said. The result is “losses for Syrians, most of whom rely on remittances from relatives abroad.” 

When the exchange rate went from SYP 13,200 to SYP 7,500 in the parallel market and exchange shops, “remittances lost around 40 percent of their value,” Amer said. 

“The only explanation for the dollar exchange rate dropping to SYP 7,500 only to bounce back to SYP 10,000 over the course of three days is speculators exploiting liquidity restrictions,” Assi said. “They set the appropriate exchange rate for themselves, using websites they control.” 

Syria is experiencing a “process of liquidity freezing, due to disruptions to the payment of monthly salaries for large numbers of [state] employees, as well as a failure to supply public and private banks with necessary liquidity,” Assi added. This has “intensified exchange rate fluctuations and speculation on the local currency, creating discrepancies between the parallel market and the official exchange rate.” 

Currency exchangers or speculators also read the political openness of Syria’s new administration, led by Ahmad al-Sharaa, as an “improvement,” the owner of one currency exchange company that has branches in several provinces told Syria Direct. “The pound improved when he visited Saudi Arabia, then fell after he returned,” he added. “The market is in the hands of speculators,” while “the state contents itself with freezing the pound.” 

A screen capture from a video showing informal currency exchange stalls that popped up in Damascus after the Assad regime fell, 26/12/2024 (Julia Awad)

No real improvement

Abu Qassem al-Saadi, a clothing merchant in the northern Daraa countryside, is once more pricing his goods according to the dollar, as he did during Assad’s rule. “The exchange rate changes from hour to hour, so pricing by the dollar avoids losses, even though it is confusing,” he told Syria Direct. For example, if an item is priced at one US dollar, the amount customers pay in SYP changes in step with the shifting black market exchange rate. 

Al-Saadi expects prices to go up in general in the near future, “due to high operational costs,” based on what he has been told by factory owners and manufacturers. “A factory’s daily electricity expense is SYP 150,000, which used to equal $10, while now it is $15,” he said. 

As the pound improves, the prices of basic commodities should fall, but “prices did not change because the improved value is not real, does not reflect economic improvement and is not the result of attracting investment,” Amer said. 

Assi gave a similar assessment. “The rise and fall of the pound is not real. It is mainly caused by speculation and liquidity freezing,” alongside “the political climate and a large number of Syrians being able to return to the country,” she said. However, “there is no change in economic indicators: exports have not increased, neither has production, and we have not seen an influx of foreign investments.” This means “the dollar should, at best, maintain its value.”

For the exchange rate to be real, “it must be flexible,” and to be flexible a number of conditions must be met, Assi explained. The rate should be “the result of the balance between supply and demand for foreign currency, without influence or intervention by the central bank on the supply or demand side,” she said. Additionally, the central bank must be able to “buy and sell at the announced rates, which requires having sufficient hard currency reserves.” The bank should also avoid “restraining liquidity in the markets or controlling the money supply.”

The pound’s current volatility negatively impacts civilians because “the extreme fluctuation makes many traders prefer to deal in currency rather than goods, hurting the production and commercial process,” Assi said. “Stability in exchange rates, even at a high price [for the dollar], is better than fluctuation for all parties—whether ordinary people or investors and producers.” 

Today, the exchange rates “cannot be relied upon to make investment decisions, since the improvement is overshadowed by fluctuation,” she said. “It is an uneasy improvement that is not stable, sustainable or based on economic indicators.” 

Assi advised ordinary people to keep their savings in diverse assets such as precious metals, foreign currencies and real estate “to preserve the real value of those savings and avoid expected losses if there is a sufficient supply of the Syrian pound in the markets.”

As for the near future of the pound, “it will fall against the dollar again,” Amer said. “This is natural, as the pound will see no real improvement until there is improvement in economic performance, export of Syrian products, attraction of investments and the lifting of sanctions on the central bank.” 

Amer called on the Damascus government to take a series of steps, including “making monetary policy management more efficient by consulting experts, promptly paying salaries and wages owed to employees and lifting restrictions on depositors’ withdrawals from banks.” Other steps include “reconsidering effective tax policies to include a significant increase on luxury goods and a cut on basic goods, as well as banning small shops and individuals from currency exchange, limiting such activity to licensed exchange offices.” 

If demand for the pound remains high, “the central bank should make the decision to print new currency to meet the need and restore the balance between supply and demand,” he added. 

This report was originally published in Arabic and translated into English by Mateo Nelson.