Syria’s and Lebanon’s cash crises
Summary: Syria and Lebanon have some of the weakest currencies in the world, having depreciated by over 98% to the US dollar due since the 2011 civil war, and the 2019 financial crisis in Lebanon. Syria plans to revalue the currency by removing two zeroes while Lebanon is mulling new higher denomination notes, but such policies face major obstacles amid the need for economic reforms.
We thank Paul Cochrane for today’s newsletter. Paul is an independent journalist covering the Middle East and Africa. He writes regularly for Middle East Eye, Money Laundering Bulletin, Fraud Intelligence, and other specialised titles. Paul lived in Bilad Al Sham (Cyprus, Palestine and Lebanon) for 24 years, mainly in Beirut. He co-directed We Made Every Living Thing from Water, a documentary on the political economy of water in Lebanon.
The largest bank note in circulation in Syria, SYP5,000, is worth just $0.38. In Lebanon, the LL100,000 note is worth $1.11. Pockets bulge with cash, and people walk around with small bags full of currency to pay for even the smallest purchases. Calculators are widely used to make conversions in the tens of thousands to the millions, or to split up a payment in the local currency and in dollars.
Fourteen years ago in Syria, when the civil war started, that SYP5,000 note would have gone quite far, when the exchange rate was SYP50 to a dollar. But as the conflict expanded, and the central bank drew down on its foreign reserves and sanctions were piled on Syria, the pound began on a slippery downward slope, declining by 99%, to be worth SYP13,000 to a greenback today.
In neighbouring Lebanon, the lira had been pegged to the US dollar at LL1507.5 since 1997, with a LL100,000 note equivalent to $66. Following the October 2019 financial crisis, the lira has plunged by 98%, to LL89,667 to a dollar.
The depreciation has meant serious economic deprivation for the majority of people, wiping out savings and pensions, and making public sector salaries nearly worthless. The percentage of Lebanese under the poverty line has surged from 40 prior to the crisis to over 70%, while over 90% of Syrians are in poverty.
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Both Syria and Lebanon are grappling with severe currency depreciation, where the largest banknotes are worth less than a dollar, leading to widespread poverty and a necessity to carry massive amounts of cash for simple purchases [photo credit: Paul Cochrane]
Both countries have recently announced measures to try and deal with the nearly worthless currencies. Beirut has floated the idea of issuing larger notes, of up to 1 million lira – there are rumours of up to LL5 million - and Damascus is to drop two zeroes from its currency on 8 December, to culminate with the anniversary of the overthrow of Bashar Al Assad. Such moves however are not expected to fix the currency issues, and may drive further demand for foreign currencies, particularly dollars and euros, amid the economic uncertainty and banking crises.
Indeed, Lebanon’s economy was already dollarised prior to the self-inflicted banking crisis, with dollar-denominated bank loans to the private sector ranging from 68% to 89% of total loans between 1997 and 2019, while dollar deposits made up between 61% and 77% of total bank deposits. Dollars were widely used, and ATMs offered both lira and greenbacks. Today, banks only allow depositors to withdraw around $400 a month from accounts frozen during the crisis (the banks adopted illegal capital controls), or from ‘fresh dollar’ accounts – transfers received post-crisis. Dollarisation has however deepened at a commercial level, with goods and serviced typically priced in dollars due to the incredible fluctuations and depreciation of the lira, as well as hyperinflation.
If the plan to issue bigger lira notes materialises, it will not have a huge impact given the already high usage of dollars, while people want to be paid, and to save, in dollars given the ongoing risks of further devaluation. Lira today is mainly being used as small change – US coins are not accepted – and other than for daily expenditure, Lebanese will want to change lira for dollars, euros or gold – anything that will hold value.
A sounder move might be to knock off multiple zeros and revalue the currency, as Syria intends to do, but Beirut is not in the position to do so as there are even bigger issues at play - reforming the banking sector that caused the currency devaluation in the first place.
While a law on the Reform and Re-Organisation of Banks was passed in August, which provides a framework for restructuring and/or liquidating banks, the law is dependent on the enactment of the “Financial Regularisation and Deposit Recovery Law” (known as the Gap Law), which aims to allocate losses and compensate depositors for the financial crisis, and, crucially, to fully implement the restructuring process. However, politicians, under pressure from the bankers and the old guard, are delaying the enactment of the Gap Law, which may not be passed before the general election in May 2026, which would kick the can further down the road on serious reform. Issuing bigger bank notes could therefore be seen as a largely cosmetic move when the economy is in dire straits, as on top of the financial crisis and the gargantuan debt, Lebanon was put on the Financial Action Task Force (FATF, the global standard setter in anti-money laundering (AML) rules) grey-list in 2024, and in July on the European Union’s black list as a high risk jurisdiction.
Implementing reforms will be key to Lebanon getting off the grey lists, as well as showing it is serious about the rule of law, and holding those in power accountable. The release of longstanding former governor of the central bank, Riad Salameh, who was charged for corruption and embezzlement of $42 million in 2024, on bail of $14 million in September this year – reportedly paid in bags of cash - has implied impunity rather than accountability is Lebanon’s modus operandi.
Syria faces similar issues to Lebanon. While sanctions on the country have been eased, Syria is on the FATF grey-list and faces major obstacles to rejoining the international financial system and getting its economy fully functional. Indeed, the World Bank recently estimated the cost of reconstruction at $216 billion, while the United Nations has estimated that at current growth levels, the economy will not regain its pre-conflict GDP level before 2080.
Revaluing the pound may compound Syria’s fiscal woes, being costly at a macro level while causing associated knock-on effects, such as higher interest rates, and higher inflation – as Egypt experienced when it devalued the pound in 2023/4. Higher inflation would also drive up import costs, a major concern as Syria is import-dependent due to the widespread destruction of the manufacturing base. Syrians may also increasingly use foreign currencies if the devaluation does not go fully to plan and the pound is not stabilised, be it in Turkish lira in the north, to euros and dollars in general, and in the Israeli occupied south, even shekels.
The high cost of revaluation is a major drawback to Damascus’s plan, which might have been better to have issued larger denomination notes and delay revaluation until the economy stabilises and the banking sector is revitalised.
A very necessary move is removing the image of Assad, father and son, from bank notes as the country enters a new era. Better oversight of the currency in circulation, estimated at SYP40 trillion ($3.07 billion) outside the formal financial system, is also a necessary component of the currency plan.
Ultimately, Damascus’ and Beirut’s plans for their currencies are not going to be a panacea for the overarching fiscal and economic issues the countries face. In Syria, at least bank notes’ imagery will change, although what the new designs will look like, and whom may feature, may be another bone of contention for the new government.
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