Syrian Pound and Political Solution
The exchange rate of the Syrian pound against foreign currencies continues to deteriorate, it reached an unprecedented level during the past two weeks, exceeding the ceiling of 700 Syrian pounds per US dollar. This reflects further deterioration in the living conditions of the vast majority of Syrians (85% of Syrians live in absolute poverty), and this deepens the Syrian tragedy and wounds in a disastrous way, with great risks at various levels.
Undoubtedly, there are direct economic and financial reasons for the depreciation of the Syrian pound:
- Real production reduced down to 40% compared with the pre-2011 levels.
- The Syrian money supply almost tripled during the years 2011 – 2018, according to estimates that can not be confirmed or denied because the real figures are not announced!
- The policy of financing imports, which results in astronomical profits channeled directly into the pockets of importers at the expense of the general public.
- Trade deficit between export and import, which accounts for up to a quarter of GDP.
- Continued smuggling of dollars abroad, which is a process that local banks are involved in (as branches of foreign banks).
The approximate economic calculation of the combined effect of the above factors can justify only half the volume of inflation in the Lira (the national Syrian currency). This means that the effect of these factors justifies an exchange rate of up to 350 Liras per dollar, while the enormous gap remaining towards 700 Liras can find its easiest explanation in the speculation related to the high demand for the dollar as a profitable commodity against the Syrian pound.
The general talk about speculation as a supply and demand between two currencies can reveal part of the truth, but it misses the most important aspect of that truth: the political factor of this process.
If the Syrian pound has lost 86% of its value during the years 2011 to 2018, this depreciation has reached 93% of its value in the last few weeks, compared with its value in 2010, that is, an additional significant acceleration has appeared in the collapse of the value of the Syrian pound, without being able to be fully explained or justified based solely on questions of economic sanctions or overall economic and financial changes during this short period.
The deep reason for this decline is directly related to the nature of the allusions related to the Syrian political solution and the Syrian Constitutional Committee; the détente that was hoped with the launch of the Constitutional Committee and which would have strengthened the Syrian Pound has been counterproductive due to a number of statements and signals – raised by several political parties about the Syrian Constitutional Committee – which were intended to marginalize this committee and underestimate its importance, which means reducing the importance and opportunities of the political solution as a whole.
The correlation between the strength of the Syrian pound (the living conditions of the Syrian people) and the openness of the prospects for a political solution is a profound and highly influential correlation, and the equation became clearer than ever: with every delay or a sign of delay, the strength of the Syrian national currency will weaken further, and vice versa!
Kassioun Editorial, Issue No. 940, November 18, 2019