Success of Syria’s new currency move will rely more on 'policy than new notes'

Strong economic policies needed to boost currency value and spur economic growth, analysts say

A money changer waits for customers on a street in Damascus. AFP

Syria’s move to issue new bank notes and eliminate two zeroes from its currency is expected to help simplify transactions but will not strengthen the currency amid weak economic growth and high inflation, according to experts.

Last week, Reuters reported that Syria will issue new banknotes, removing two zeroes from its currency in an attempt to restore public confidence in the severely devalued pound. The Russian state-owned money printing firm Goznak is expected to produce new notes after Syria finalised a deal with Moscow last month, it reported.

“The elimination of two zeroes from the Syrian pound is essentially a nominal adjustment rather than a real strengthening of the currency,” Zaki Mehchy, researcher at the London School of Economics and Political Science told The National. “While redenomination may simplify transactions and make the currency appear stronger on paper, it does not address the structural challenges that continue to weaken the pound.”

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The underlying drivers of inflation and currency depreciation remain intact amid weak economic growth and surging imports, he added. The Syrian economy has been devastated by years of civil war, with the UN's Development Programme estimating cumulative losses – including physical damage and economic deprivation – at more $923 billion at the end of last year.

The civil war began after protests in 2011 against Bashar Al Assad, who was at that time the country's dictator, and subsequent fighting against extremist groups such as ISIS – resulting in the devastation of infrastructure, displacement of skilled labour and the draining of domestic industry. The national economy has struggled since, with gross domestic product dropping 6.4 per cent in 2016 before gradually recovering, government data shows.

The Syrian pound has lost more than 99 per cent of its value since the war in 2011, with the exchange rate now at around 10,000 pounds to the US dollar, compared with 50 pounds to the dollar before the conflict. The sharp depreciation has made daily transactions and money transfers increasingly difficult for residents, with families forced to carry stacks of money in plastic bags to pay for groceries and other items.

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Syria is also expected to remove images of the former presidents Bashar Al Assad and his father Hafez from its notes, reflecting "one of the many ways that the Syrian nation is turning the page on a tumultuous and bloody era and is starting a new era”, said Nassib Ghobril, chief economist at Byblos Bank.

However, redenomination of a currency is most effective in an "environment of economic growth, stability, and high productivity”, Mr Mehchy said. “These conditions are not present in Syria today, where the economy remains fragile. The World Bank projects Syria’s growth rate for 2025 at just 1 per cent, which is extremely low for a country emerging from prolonged conflict and following a nearly 80 per cent contraction in gross domestic product between 2010 and 2024.”

The US announced the lifting of sanctions on Syria in May this year, in a move expected to help the country attract investment and support its economic growth. Earlier this year, Saudi Arabia and Qatar agreed to settle Syria's outstanding debts of about $15 million to the World Bank to pave the way for the Washington-based lender to resume support and operations in Syria after a suspension of more than 14 years.

Last week, Syria and Saudi Arabia also signed an agreement to boost and protect bilateral investments. This comes after Saudi Arabia signed investment agreements worth 24 billion Saudi riyals ($6.4 billion) to support the rebuilding of the Syrian economy. Other countries including Turkey and Qatar have also pledged investments in the country.

However, security is a major problem that is causing concern among investors, as sectarian violence continues. Last month, hundreds of people were killed in Sweida in clashes involving Druze fighters, Bedouin tribesmen and government forces. Israel also intervened with strikes, and claimed its attacks were to protect the Druze.

Policy rather than new notes

Syria's new measures will deliver results when "combined with sound macroeconomic policies, transparency, and institutional trust", Rania Gule, senior market analyst at trading platform XS.com, said. "For Syria, success will hinge less on the new notes themselves and more on the policies backing them.”

A bank teller counts Syrian pound banknotes at the Syrian Central Bank in Damascus. EPA

The printing of new currency is also going to cost hundreds of millions of dollars, said Benjamin Feve, senior research analyst at Karam Shaar Advisory, based in Beirut. "The government does not have that money. So who's going to pay? That's very unclear," he added.

Turkey's currency move

There have been also previous instances when countries removed zeroes from their currencies. Turkey undertook the exercise successfully in 2005 amid strong economic growth, while in Zimbabwe and Venezuela, where macroeconomic stability and economic reforms were absent, the measures failed.

Turkey removed six zeroes from the lira, a move that succeeded "because it was the final step in a stringent, IMF-backed reform programme that established central bank independence, fiscal discipline and banking sector reforms", Firas Shaboo, an economist and researcher based in Istanbul, said.

However, Venezuela's repeated removal of zeroes (five in 2018, six in 2021) failed because it was "unsupported by genuine economic reforms", he added. "The government continued financing spending through money printing, resulting in hyperinflation that eroded the new currency's value and credibility."