The 5000 SYP; the Market needs more Syrian Pounds to keep pace with the Dollar Price
Logical estimates say that the newly introduced 5000 SYP [a piece of paper money that had never existed before] will turn into a surplus money supply in the market because the current level of prices needs an additional money supply of Syrian pounds. However, this will not be a reason for price increase, as prices are practically dollarized and are deeply related to the decline in the flow of goods inside and into the Syrian economy.
The government issued the 5000 SYP, and the official statements said first that it would be a substitute for damaged pieces of paper money, then the government said that it will be existed in circulation alongside other banknotes. Thereafter, the Minister of Economics talked about the “economic growth” in 2020. All of those attempts, however, are likely a kind of “government prestige” that the government finds itself in need to introduce to accompany procedures of this kind, as the prevailing custom is that the government should seem confident and try to reassure the public, while everyone, particularly the government itself, knows that trust is lost.
This new piece of currency printed since 2019 has been waiting to go into the market, and the government is dealing with the fait accompli as an acted upon and not an actor. Practically, the market is pricing based on the dollar, in addition to the fact that a wide segment of consumers is also consuming based on the dollar with the system of remittances, which now contributes, at the minimum, 20% of expenditure on the GDP, while the total contribution of the government wages and salaries does not exceed 2% of total expenditure. The government is pumping extra Syrian pounds so it can keep pace with fluctuations of the dollar and express its value. It is no longer able to lower the price of the dollar but can work to provide a certain money supply of Syrian pounds in the market, so that the formal circulation will be at least in the Syrian pound. This, of course, is the minimum possible, as talking about flotation of the Syrian pound is the most dangerous and it will practically stop its role as a circulating medium in the local market.
The Need for Money Supply is a Reality
The GDP of 2019, according to the latest government statistics, approximated 11.9 thousand billion SYP, i.e., what is equivalent to $17 billion with the actual price of the dollar at the end of that year. As for the end of 2020, the money supply in SYP that we need in exchange for the same GDP has become 40 thousand billion SYP! This money supply (is not all needed) but rather less than it as a matter of course. However, even if we reduced it at the circular velocity of money in Syria 1.4*, and considered that the GDP in Syria was reduced by 10% as in the neighboring countries during 2020 and the global economic crisis, we will still be needing 25 – 26 thousand billion SYP to keep the circulation in the market based on the national currency and for the Syrian pound to remain available at least, even if it reflected the prices that are quoted in the dollar! Nevertheless, what is the money supply available in SYP in the Syrian market before printing the new 5000 SYP? No one can clearly estimate it, nor does the government declare such sovereign number! The last estimates in 2018 indicated the existence of a money supply in the whole market of nearly 6000 billion SYP, according to Prof. Ali Kanaan from Damascus University. However, no other estimates came later, and if we took government budgets as an indicator of the increase of the issuance of currency, the bloc of Syrian pounds increased in the budget by approximately 822 billion SYP only between the years of 2018 – 2020, which probably has not been all issued because government expenditure has reduced in the last tow years. This indicates that the supply of Syrian pounds might need to be increased according to those estimates, which is the fait accompli imposed by dollarization! (There is at least a supply of remittances that arrives to the market close to $3 billion at the minimum estimates, and this needs 9000 billion SYP today to be circulated in the black market). What we want to say is: the supply of Syria pounds in the market is no longer a critical determinant. Instead, there might be an actual need to increase the supply of Syrian pounds so it can reflect the increase in the general level of prices evaluated in dollars and not in Syrian pounds. If this supply is not found, the market will impose a direct circulation with another currency!
The Issue is not about Zeros
The fear is not from the surplus supply of Syrian pounds as much as it is from the increase in the general level of prices alongside freezing the amount of wages and alongside the decline in the real income of producers. Both are a result of the dominance of the dollar and of the policies and the circumstances that push towards the deep decline in the economic output and in the supply of goods produced and flowing into the country. The issuance of the 5000 SYP coincided with the direct increase in the prices of basic foodstuffs in the market. Some estimate the increase since the issuance by more than 20%, as the prices of oil, sugar, rice, and chicken increased at record levels, where the market does the usual reaction when it expects an economic downturn and the major suppliers seek to secure their advance share of the expected money supply in anticipation of the collapse in the value of the Syrian pound which is expected at any moment, with or without the 5000 SYP. Again, the problem is not with the number and zeros of the banknote, rather in the purchasing power of incomes, and in the level of the contribution of the Syrian pound in financing local commodity production, which are both at their worst. The wages are fixed at minimum levels, not enough to provide a daily lunch for one person, and financing with the Syrian pound is meaningless as long as basic needs and energy are imported, monopolized, and mortgaged, not only to the dollar, but also to the elite that owns and trades it outside the framework of production.
Government policies will not save the Syrian pound today, and the issuance of an additional money supply may not be the problem, as the government is responding to the market and sending a supply of Syrian pounds to keep pace with the dollarized prices. However, talking about flotation is the frightening indicator, as it reflects intentions, policies and opinions of political, economic and financial powers that practically want to make dollarization a fait accompli, so the Syrian pound becomes a weak, dispensable medium of circulation. The Syrian pound can only be saved by increasing the cycle of production, flow of goods and the consuming capacity of all Syrians, which is seriously hampered by the powers of “economic oppression” that hold the largest supply of resources and invest in corruption, chaos, and “opportunism” in the first place. Whereas many Syrians and other powers are waiting for the ability to achieve a condition that allows serious investment in Syria, a country that, if only the power of chaos was kept away from it, and the wheel of society was allowed to move and produce, can achieve rates of return that exceed 50% according to economists’ estimates, which is a high rate compared to the rates of real return on investment worldwide. This alone is enough to overcome sanctions and mitigate their role through the movement of the Syrian pound and other available resources, so that we can at least go on.