Demand for foreign currency remains high in Syria

AMMAN: A recent pledge by Syria’s central bank to take action to support the pound is already looking hollow, raising speculation the authorities may no longer be willing to burn up reserves defending the currency.
The pound has plunged by nearly a quarter this month against the dollar since rebels seized vast areas of the oil-rich northeast region, prompting more Syrians, fearful of the economic outlook, to convert pounds into foreign currency.
The pound, which is only traded in Syria and neighboring Jordan and Lebanon and mostly on the black market, hit a record low of 226 to the dollar last Wednesday on the black market and has stayed close to that level this week, local financial sources said.
Central bank Governor Adeeb Mayaleh, in an interview on Sunday, blamed the pound’s fall in the black market on speculators, whom he compared to insurgents waging a war against his sanctions-hit country. He vowed to take action to support the currency.
“People once they get a bit more afraid rush to change their pounds into foreign currency. There is no economic factor at play, it’s just psychological. There are many measures we will take to help the pound recover,” Mayaleh said.
He did not elaborate on what those measures might be and the absence of any action this week to halt the pound’s slide has sparked rumors that the central bank is now prepared to let the currency fall.
Defending it would mean burning up more foreign currency reserves, which have been depleted by a slump in tourism and oil revenues and by previous efforts to prop up the currency.
Syria’s foreign reserves were estimated by officials and independent economists at $17 billion before the uprising against President Bashar Assad’s rule began two years ago. Some bankers estimate they are now as low as $4 billion.
On Tuesday Mayaleh met licensed exchange dealers and financial institutions, but there was no public announcement after the meeting, adding to market speculation that action was not imminent.
“After Mayaleh’s first appearance in months and his outward confidence, people were expecting strong intervention but this has not materialized, worsening the pound’s plight,” a dealer at one of the 30 leading licensed exchange houses in Damascus said by telephone.
After being relatively stable for months, the pound has fallen sharply since rebels seized the provincial city of Riqqa in eastern Syria on March 4, giving them control of much of the northeast region, home to all of the country’s oil production and most of its grain output.
Several currency dealers in Damascus contacted by telephone said the pound was trading between 115 and 120 to the dollar on Wednesday on the black market, while the official rate was 97 to the dollar. Exchange dealers in Jordan and Lebanon use rates close to black market rates in Syria.
Paradoxically, dollars finding their way into rebel-held areas of Syria is preventing a faster fall in the pound.
Civil war now rages in most of Syria’s provinces and the UN says 70,000 people have been killed. Bankers and dealers said the pound has lost more than half of its value since the uprising began in 2011, when the currency stood at 47 pounds to the dollar.
The central bank’s decision in January last year to allow private banks and exchange dealers to sell dollars at rates closer to black market prices was no longer stabilizing the market, with few banks or exchange dealers now willing to sell scarce foreign currency.
Syrians worried about the growing violence and the shrinking value of their local currency savings, and pessimistic about a political breakthrough, have hoarded more dollars in recent weeks, exchange dealers say.
Mayaleh said on Sunday that the monetary authorities were planning soon to offer local currency bonds at high interest rates beyond the current 10 percent. Bankers, however, said that such bonds would not be attractive at a time of deep uncertainty about the future.
“We want to compensate people for the losses of the gradual fall in the pound since the crisis. The high interest rates on such certificates will cushion people’s purchasing power,” Mayalah said.
If the authorities have resigned themselves to a sustained fall in the currency, as bankers believe, that will add pressure on Damascus’s already dwindling financial resources and its ability to continue to withstand sanctions imposed by Western countries.
It would also aggravate the hardship of the Syrian people by boosting inflation, which is now officially running at around 40 percent but probably is much higher, independent economists say.
Last year, the authorities injected at least five to 10 million dollars daily to help shore up the currency.
“With the crisis deepening, few bankers expect the central bank to put a strong defense despite all the talk on how important the pound’s strength is to the economy,” said a banker at the Damascus subsidiary of a foreign bank.
Bankers now believe the central bank is more concerned with conserving its increasingly scarce foreign reserves — whose low levels have already forced Damascus to barter deals with Iran, Ukraine and Iraq to secure basic commodities — than with protecting the currency.
“The impact of two years of conflict are now clearly visible in the way the pound is being more and more left to its own devices. We are bracing for a period of wider fluctuations than stability,” the banker said.