Foreign Currency Reserves depleted at Syrian Central Bank

The Syrian Pound (SP) lost further ground to the dollar on Tuesday with reports from Syria that the greenback traded at 71 SP, while daily financial transactions showed unwillingness or inability of the Syrian Central Bank to pump dollars into the Syrian market to preserve the SP's value.

In mid march, before the outbreak of the Syrian Revolution against the regime of President Bashar Assad, the dollar stood at 45 SP.

Meanwhile, sources from the Iraq Central Bank (ICB) also reported that the Iraqi Dinar is under market pressure forcing the ICB to pump foreign currency into the Iraqi market to preserbe its value. 

Iraqi sources reasoned that Syrians and Iranians are straining the Iraqi currency in their quest for US dollars. Treaties between Iraq and Syria, on one hand, and Iraq and Iran, on the other, allow for the trade of local currencies. Syrians are swapping their free falling pounds, the Lira, with Iraqi dinars. They then swap their dinars with dollars that they take back home, where greenbacks are rare and are in high demand.

Iranians are doing the same by using the Iraqi dinar as an intermediary currency between their Riyal and the dollar. The end result is the accumulation of Syrian Liras and Iranian Riyals at the vaults of Iraq's Central Bank, which has been losing major chunks of its Foreign Currency (FX) Reserves over the past few weeks.

The Iraqi government is in a better position to defend its Dinar thanks to foreign currency revenue from the daily sale of 2.2 million oil barrels. The Syrian and Iranian governments, however, find it hard to put their hands on foreign currency. They come to Baghdad looking for dollar and in the meantime put strain on the Iraqi Central Bank and its Dinar. Yet, such a measure will not be enough to salvage the hyper inflation hitting Syria, in the short term, and Iran, in the medium and long terms.

Predictions have it that the Syrian Pound will lose further ground to the dollar, which is expected to stand at 90 SP in the coming few weeks. The 90 SP marks double the price for the dollar before the outbreak of the revolution in mid-March. This means that a Syrian employee whose salary is $1000 dollars a month (45,000 SP), will be taking home half the amount as his same salary becomes the equivalent of $500 when the dollar hits the 90 SP mark. 

During the mid-80s, the Lebanese experienced similar hyperinflation. The dollar shot up from 3 Lebanese Liras in 1982 to 2,200 in 1992. The Lira never recovered and the dollar trades at around 1,500 Lebanese Liras today, except that the successive governments eventually managed to readjust to the new Lebanese Lira's value. 

In Syria, the Central Bank looks to have run out of FX reserves and is unable to defend its national currency. The value of the Syrian Lira is now up to market forces, and these – given Syria's unrest – are not expected to act in favor of keeping the Syrian Lira strong.

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