Turkish lira or Syrian pound? Currency debate sparks divide in Northern Syria

Opposition groups in Syria’s North are opting to use the Turkish lira over the Syrian pound to take advantage of a more stable currency, while also deliberately seeking to devalue the Syrian pound and undermine Assad’s power. But how much of a larger economic and political impact is this likely to have on the regime?

Some local institutions in opposition-held parts of northern Syria are opting to use the Turkish lira over the Syrian pound as their primary means of exchange. The lira is overall much less volatile than the Syrian pound, which has been hit hard after five years of conflict.

Doing business with the lira also allows local merchants to carry out cross-border exchanges with Turkish companies.

Opposition groups are also using the lira as a political tool to further devalue the Syrian pound and damage the Assad regime’s economic power. This has sparked an interesting controversy amongst Syrians, especially in Aleppo, where some see the use of the lira as “anti-nationalist” even though many are also against the Assad regime.

Turkish Lira: A currency of opportunity

Since the start of the Syrian conflict in March 2011, Syria’s economy has contracted more than 50% in real terms. Inflation has averaged 51% since January 2012, while the Syrian pound has depreciated by 80% since the start of the war.

All sectors of Syria’s economy have been virtually devastated. Prices of local commodities, goods, and services are often too expensive for Syrians still living in the country. Bread prices, for example, have skyrocketed since the start of the war, especially in rebel controlled areas as the chart below demonstrates:

SOURCE: Syria Direct

In Aleppo, a city divided between opposition forces and the regime, some pro-opposition institutions,including Aleppo’s Sharia Court, the Free Lawyers of Aleppo group, and the Union of Media Professionals, among others, are switching to the lira to protect businesses from volatile supply and demand shocks of the Syrian pound.

If the Syrian pound drops, people go hungry. But using the lira allows local economies to stabilize during an economic downturn.

Another key economic benefit of the lira is that Syrians living on the Turkish side of the border can draw credit from Turkish banks and send hard cash back to Syria, whether it is to help family or for investments.

This is likely to spur a small boost of economic stability in Syria’s north, as the Syrian pound will be pushed out during cross-border trading. The Financial Times reports Turkish exports to Syria initially plummeted at the start of the war, but have since recovered, reaching $1.8bn last year and $740m in the first half of 2015.

While the lira is overall much stronger than the Syrian pound, there are also some remaining risks involved with adopting the foreign currency.

The lira has seen a slight devaluation over the past few months, as elections and internal security issues have prompted investment fears. Additionally, opponents say that using the lira will ultimately hurt Syria’s impoverished population in the north, as many of them are still paid in pounds.

Opposition groups in the north are also using the lira as a political move to undermine Assad’s power in the country. By switching over to the lira, opposition forces are seeking to push out the pound from local markets and cross-border trade transactions with Turkey.

Many also urge disassociation with the regime, which has continued to commit immense humanitarian atrocities against civilians in the north.

At the same time, however, other pro-opposition members in Aleppo say using the lira is “anti-nationalist.” They argue that using the Syrian pound is a sign of nationalism, not regime loyalty.

Citizens who use the lira are often called “shabbiha,” a term previously used to describe pro-regime gangs.

To the extent that this debate remains on the ground, a strong portion of opposition institutions are already opting for the lira and gaining small profits in an otherwise war-torn, depreciated economy.

Longer-term economic impact

While local institutions in Syria’s north may be making small gains, the switch to the lira is unlikely to have a profound impact on Assad’s economic grip of power. The majority of Syria’s remaining economic sectors are located in Damascus, which is strongly held by regime forces.

Any loss in demand of the Syrian pound in the north is unlikely to have a strong ripple effect in Damascus, where the country’s banking sector is still functioning.

The switch to the lira in the north, however, is still an important development, as it underscores the north’s attempt to operate on its own as a defacto state, increasingly separating itself from the Syrian regime.

It also demonstrates the extent to which Turkey’s influence of power is extending into Syria’s north in midst of its attempt to establish an “ISIS-free zone.”

by Madeleine Moreau

sourche: http://globalriskinsights.com/2015/09/turkish-lira-or-syrian-pound-currency-debate-sparks-divide-in-northern-syria/