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Syria’s central bank adjusts exchange rates, lagging behind the black market

Damascus is reducing the gap between the official dollar exchange rate, which lags behind the widely used black market rate. The latter is the lodestar for Syrian traders, as it reflects the real value of the Syrian pound.

27 September 2022

PARIS — Last week, the Central Bank of Syria adjusted exchange rates for the second time this year, raising the rate of the US dollar against the Syrian pound (SYP) from SYP 2,800 to SYP 3,015 to the dollar. The central bank also raised the exchange rate for foreign money transfers from SYP 2,800 to SYP 3,000 to the dollar. 

The exchange rate for military service exemption fees was also raised, from SYP 2,525 to the dollar to SYP 2,800, in the first such adjustment since the beginning of 2020. 

With the latest adjustments, the official exchange rate remains 33 percent below the black market rate of SYP 4,590 to the dollar. That rate is the one used by traders and others making transactions using the US dollar in Syria. 

Abu Abdulhaq, an electrical appliance dealer in Inkhil city, in Syria’s southern Daraa province, follows the unofficial exchange rate “moment by moment.” But official adjustments to the central bank’s rate mean little to him. “As long as the black market rate is stable, things are fine. Nobody cares about the central bank and its decisions,” he said. 

Since the 1960s, the Syrian regime has followed a policy of multiple exchange rates for several purposes, including stimulating the national economy. Amid a deepening economic crisis since the Syrian revolution broke out in spring 2011, Damascus has expanded this policy to try to control the value of the pound and make illicit profits from exchange rate differences. The policy is also one of the ways the regime seeks to decrease the gap between the official and black market exchange rates. 

Limited impact

Syria’s traders use the parallel market rate to set the prices they buy and sell their goods at “because any change to it directly affects our business, while the prices of basic goods and materials aren’t impacted by the central bank’s exchange rate adjustments,” Abu Abdulhaq said. 

For his business, Abu Abdulhaq sources electric appliances from the local market as well as neighboring Jordan and the Gulf. He transports them using foreign trucks that cross the Syrian border, and pays for cross-border purchases in the local currency of the exporting country or the US dollar. In both cases, “I buy foreign currency from the black market, because the central bank only gives dollars at the rates it announces,” he said. 

In turn, he sets prices for his customers in Syrian pounds, but in proportion to the pound’s black market exchange rate. Market stability for both Abu Abdulhaq and consumers is tied to the unofficial value of the Syrian pound, which deteriorated significantly this year, losing more than 20 percent of its value. 

“The black market will remain an indicator for traders and the central bank, because it reflects the real value of the pound,” said Manaf Quman, an economics researcher at the Turkey-based Omran Center for Studies.

The impact of the Central Bank of Syria’s adjustments to the exchange rate for foreign remittances and transfers will also be “limited,” he said, because “the gap between the official and black market exchange rates is still significant.” This means the regime’s move to adjust the exchange rate “won’t reduce the withdrawal of high-value currencies [such as the dollar, euro or Saudi riyal] from the black market.” 

Karam Shaar, the Syria Program Manager at the Observatory of Economic and Political Networks, said “import spending in Syria is still based on black market prices.” Most remittances also still “come through the black market, not the official market,” he said. Thus, changes to the unofficial exchange rate affect the market as a whole more than central bank rates. 

For example, Omar Abu Muhammad, 27, who lives in the western Daraa countryside, received a money transfer from his brother living in Jordan one day after the September 19 decision by the central bank to raise the exchange rate for foreign remittances. 

The transfer office Abu Muhammad went to paid him SYP 400,000 for the value of the $100 transfer using the black market rate. Going by the official rate, he would have received SYP 300,000. 

The difference in value between the same transfer at the official rate versus the black market rate, SYP 100,000,  is equivalent to the average monthly salary for a public sector employee in Syria, estimated at around SYP 92,000 ($20 according to the black market exchange rate of SYP 4,565 to the dollar). “The difference provides food and drink for the household for 10 days,” Abu Muhammad said. 

Attempts to reduce the gap

Since March 2020, the gap between the official and parallel exchange rates of the Syrian pound to the dollar has widened significantly. At the time, one dollar was equal to SYP 1,105 on the parallel market and SYP 704 at the official rate. 

The sharpest difference between the two exchange rates came in March 2021, when the black market rate reached SYP 4,000 to the dollar, 218 percent higher than the official rate of SYP 1,256.

In May 2021, the Central Bank of Syria narrowed the gap by increasing the official exchange rate to SYP 2,512 to the dollar. It did so again this past April, raising the rate to SYP 2,814, and again to SYP 3,015 on September 19. 

Changing the official exchange rate while keeping a difference between the official and parallel rates “reflects the Syrian government’s desire to preserve a certain gap between the official and black market rates, in order to maintain a constant difference between the two markets,” Shaar said. 

“The current increase in exchange rates is a response to increased black market rates,” he added. “As the gap between the two markets widens, people’s desire to deal in the black market grows because the difference between them is large.” At the same time, the regime cannot raise the official exchange rate to equal the black market, because of the “very large inflationary effects”  such a move would entail, Shaar explained. 

He cited remittances coming into Syria, which are “in foreign currency, and are paid in Syria in pounds. If the official exchange rate were lifted to equal the parallel market, every dollar being sent from outside Syria would be compensated with a larger number of pounds, increasing the amount of pounds in circulation and creating higher inflation.” 

The central bank’s fiscal policy “ignores the data and dire economic conditions” and “continues the [same] financial security approach [used] for 10 years,” researcher Quman said. 

The regime is not able to stop the deterioration of the pound, and realizes that “eliminating the black market isn’t possible,” Shaar said. So it “is trying to reduce black market dealings by launching security campaigns against black market workers,” with some degree of success. “Some market workers avoid it, except those with ties to the regime.”

But even this solution is “temporary” because those who “withdraw from the black market return as the security campaign recedes,” Shaar said. 

In the face of the regime’s economic policies and its inability to stop the collapse of the Syrian pound, the country’s economy will remain in ruin. But “things won’t deteriorate more than they have, since the situation is at its worst,” he said. 

“The Syrian pound will continue to fall until there is a major turn in the course of political events in Syria,” Quman said. The country continues to “suffer from international and regional isolation, as well as the spread of corruption, mafias and warlords” on top of the loss of livelihoods and “paralysis of productive sectors.”


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

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