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Jul 23, 2023

Update: Black Market and UN Exchange Rates

As my black market tracker shows, the Syrian pound (SYP) lost 65% of its value over last year. Isn't that the opposite of what you'd expect after the cessation of hostilities, easing of sanctions, and normalization steps from neighboring countries?

First and foremost, the recent depreciation has little to do with monetary policy and more with the underlying economic fundamentals. In fact, monetary policy over the past year made it more attractive to use official banking channels and lowered the need for FX subsidies.

There’s only so much that monetary policy can do in the face of Assad’s recent catastrophic economic policies.

The policy pivot happened following a potent combination of economic shocks from mid-2019 to early 2020. Since then, the SYP has lost 95% of its value. The shocks included:

• a crisis in the country’s “banking lungs” (Lebanon, Syria's financial gateway to the rest of the world)

• the imposition of the Caesar Act

• the US withdrawal from the JCPOA ("the Iran Nuclear Deal"). This limited Iran’s willingness, and perhaps appetite, to aid the regime further economically.

• the COVID-19 pandemic.

While the impact of these shocks would have been transitory, the regime’s response is what's bringing the country to the verge of collapse now. Rather than supporting the private sector and giving in to the political demands of allies before foes to facilitate economic recovery, Assad instead decided to crack down on his cronies, impose fines on businesspeople, support narcotics producers, and cannibalize the public sector.

Assad forgot that no one rules alone—no one. His policies suffocated the private sector and all but eliminated foreign support. My main hope for Assad’s departure is not external pressure but his misguided economic policies and political intransigence.

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