The Syrian Central Bank: Between Reality and Aspirations

Introduction:

The central bank is a national financial institution that plays a vital role in managing the national economy. It holds the authority to issue currency, control the money supply, and regulate and supervise commercial banks.

Central banks were established in many countries with the aim of achieving financial and economic stability and ensuring the state’s monetary sovereignty. Through monetary policy tools such as adjusting interest rates and quantitative easing, the central bank directly influences borrowing costs, investment, and consumer spending.

On the Establishment and Development:

The idea of central banks dates back to ancient times when there were attempts to regulate financial and economic matters. In ancient Egypt, the temple priest played an important economic role, which can be considered the beginning of economic and financial centralization.

In the medieval period, central banks began to appear in a more organized manner. For example, the ruler of Venice established the “Wenice of Bank” in 1171, which relied on compulsory subscriptions from the wealthy, with an annual profit guarantee. This model inspired other countries to establish similar central banks, such as the Bank of Saint George and the Bank of Barcelona in the 14th century.

In the modern era, the first contemporary central bank was established in Sweden in 1668, “Riksbank,” which is considered the oldest central bank in the world. This was followed by the establishment of the Bank of England in 1694, which became a model for modern central banks due to its role in lending to the government and organizing financial transactions.

Over time, the functions of central banks evolved to include issuing currency, regulating commercial banks, and controlling the money supply. Central banks became independent institutions aimed at achieving financial and economic stability, playing a vital role in the monetary policies of countries.

The Central Bank of Syria was established by Legislative Decree No. 87 on March 28, 1953, which included the basic monetary system in Syria. The bank officially began its activities on August 1, 1956, after an agreement between the Syrian government and the Bank of Syria and Lebanon to end the privilege of issuing Syrian currency in exchange for financial compensation.

The headquarters of the Central Bank of Syria is located in the capital, Damascus, specifically in the Sabaa Bahrat Square. The Syrian government subscribes to its entire capital, making it a public independent institution working under state supervision and guarantees, following the directives issued by the Syrian Cabinet before the fall of Bashar al-Assad’s regime.

Since its establishment, the Central Bank of Syria has played a vital role in the Syrian economy by issuing banknotes, managing the monetary fund, and the foreign exchange office. The bank also works on coordinating the activities of monetary and credit institutions and implementing Syria’s fiscal, monetary, and banking policies.

Functions of the Central Bank:

Central banks play a vital role in the national economy through a set of core functions aimed at achieving financial and monetary stability. Here are some of these functions:

1. Issuing Currency: The central bank is the only authority authorized to issue banknotes and coins, ensuring control over the money supply in the economy.
2. Monetary Policy: The central bank sets and implements monetary policies aimed at achieving price stability, controlling inflation, and promoting economic growth. This is done through tools like adjusting interest rates and open market operations.
3. Supervision of Commercial Banks and Other Financial Institutions: The central bank ensures the stability of the financial system and prevents banking crises by setting rules and regulations, monitoring compliance, and providing financial support when necessary.
4. Managing Foreign Reserves: The central bank holds and manages foreign reserves to ensure the stability of the national currency and support monetary policies.
5. Lender of Last Resort: The central bank provides financial support to commercial banks in emergencies to ensure the stability of the financial system and prevent banking crises.
6. Regulating Credit: The central bank controls the money supply and interest rates, influencing borrowing and investment costs.
7. Government Debt Management: The central bank helps the government manage public debt by issuing government bonds and regulating the debt market.
8. International Cooperation: The central bank participates in international cooperation with other central banks and financial institutions to enhance global financial stability.

Before the Ba’ath Party and Assad’s control of power in Syria, the Central Bank of Syria played a traditional role similar to that of central banks in other countries. As mentioned earlier, the bank was established in 1953 and began its operations in 1956, with the goal of achieving monetary and financial stability in the country. During that period, the Central Bank of Syria enjoyed a certain degree of independence in implementing its monetary and financial policies, which contributed to a relative stability in the Syrian economy. However, this dynamic changed significantly after the Ba’ath Party and Assad came to power, as economic policies became more centralized and closely tied to government policies.

During the reign of Hafez al-Assad, the Central Bank of Syria underwent significant changes in its role and functions, as economic policies became more centralized and directed by the state. The central bank’s functions and its impact on the Syrian economy during this period were focused on:

1. Control over monetary policy: Under Assad’s leadership, the central bank became a key tool in implementing monetary policies aimed at achieving the government’s economic objectives. Tools such as setting interest rates and controlling the money supply were used to curb inflation and promote economic growth.
2. Management of foreign reserves: The central bank was responsible for managing the country’s foreign reserves, which helped support the national currency and ensure its stability. These reserves were also used to support the government’s monetary and fiscal policies.
3. Supervision of banks: The central bank’s role in overseeing commercial banks and other financial institutions grew in importance to ensure the stability of the financial system. Strict rules and regulations were put in place to ensure compliance and prevent banking crises.
4. Regulation of credit: The central bank worked to regulate credit in the economy by controlling the money supply and interest rates. This helped direct financial resources to the sectors that the government deemed a priority.
5. Issuance of currency: The central bank continued its traditional role as the sole issuer of currency, ensuring control over the money supply in the economy.

The impact of the Central Bank of Syria on the Syrian economy was through:

1. Inflation: In some periods, central control over the economy led to high inflation due to an increase in the money supply without a corresponding increase in production, which negatively affected the purchasing power of citizens.
2. Economic growth: Despite the challenges, monetary policies contributed to some economic growth, especially in sectors that the government focused on, such as industry and agriculture.
3. Currency stability: The management of foreign reserves and monetary policies helped maintain the stability of the national currency, which had a positive impact on foreign trade and investment.
4. Debt: External debts increased as a result of borrowing policies to finance government projects, which affected the economy in the long term.

In general, the Central Bank played a decisive role in implementing the economic policies of Hafez al-Assad’s regime, significantly impacting the Syrian economy through controlling inflation, supporting economic growth, and ensuring currency stability.

As for the era of Bashar al-Assad, the Central Bank of Syria underwent significant changes in its role and functions, especially before and after the Syrian revolution that began in 2011.

Before the Syrian Revolution (2000-2011):

At the beginning of Bashar al-Assad’s rule, the Central Bank attempted to implement monetary policies aimed at stabilizing prices and promoting economic growth. Tools such as adjusting interest rates and controlling the money supply were used to achieve these objectives.
This period also witnessed some attempts to liberalize the Syrian economy, including the liberalization of exchange rates and encouraging foreign investment. The Central Bank played a role in facilitating these economic reforms, continuing to manage foreign reserves to support the national currency and ensure its stability, which helped boost confidence in the Syrian economy.

After the Syrian Revolution (2011-Present):

After the outbreak of the Syrian revolution, the Central Bank faced significant challenges due to the economic and financial crisis that struck the country. Foreign reserves declined drastically, affecting the bank’s ability to support the national currency. The Central Bank had to adopt emergency monetary policies to counter inflation and economic collapse. These policies included printing large quantities of local currency, leading to hyperinflation and a sharp depreciation of the Syrian pound.
International sanctions imposed on the Syrian regime placed significant restrictions on the Central Bank, limiting its ability to interact with international banks and financial institutions, which greatly impacted the Syrian economy and made managing monetary policies more difficult.
Additionally, government control over the Central Bank increased, turning it into a tool for implementing government policies rather than an independent institution. This led to a loss of trust in the country’s financial and banking system.

The impact on the Syrian economy included:

1. Inflation: The printing of large amounts of local currency caused hyperinflation, negatively affecting citizens’ purchasing power and increasing their economic hardship.
2. Currency Depreciation: The value of the Syrian pound dropped sharply, impacting foreign trade and investment while increasing the cost of imports.
3. Banking Crises: Increased banking crises resulted from a loss of confidence in the financial and banking system, leading to reduced investments and a general deterioration of the economy.

Overall, the Central Bank of Syria witnessed significant changes in its role and functions during Bashar al-Assad’s rule, with major negative impacts on the Syrian economy due to the ongoing crisis and emergency monetary policies.

The importance of the central bank:

The central bank plays a vital role in the modern economic system through a set of essential functions aimed at achieving financial and monetary stability by controlling inflation, maintaining price stability, which boosts confidence in the economy and encourages investment and consumption. It also uses appropriate monetary policies to promote economic growth by providing a stable financial environment that supports investment, in addition to its critical role in supervising banks and providing financial support when needed, to maintain the stability of the financial system and prevent banking crises.

Overall, the central bank is considered the cornerstone of the modern economic system, playing a crucial role in achieving financial and monetary stability, promoting economic growth, and ensuring the soundness of the financial system.

The Central Bank of Syria plays a vital role in revitalizing and stimulating the Syrian economy, especially amid the significant economic challenges facing the country. Some key aspects of the central bank’s importance in this context include:

1. Achieving National Currency Stability: Through managing foreign reserves and implementing appropriate monetary policies, the stability of the currency enhances confidence in the economy, encouraging investment and trade.
2. Monetary Policy Implementation: The central bank determines and enforces monetary policies aimed at controlling inflation and boosting economic growth. By using tools such as adjusting interest rates and conducting open market operations, the central bank can guide the economy towards stability and growth.
3. Rebuilding Trust in the Banking System: The central bank plays a crucial role in restoring confidence in the banking system by supervising banks and ensuring compliance with rules and regulations. This helps attract deposits and investments, thus enhancing liquidity in the economy.
4. Credit Guidance for Productive Sectors: The central bank directs credit towards productive sectors such as industry and agriculture, boosting economic growth and creating job opportunities. This requires monetary policies that encourage investment in these vital sectors.
5. Public Debt Management: By issuing bonds and regulating the debt market, the central bank helps finance government projects and achieve financial stability.
6. International Cooperation: The central bank enhances international cooperation with other central banks and financial institutions, aiming to attract the financial and technical support necessary for rebuilding the Syrian economy.

The importance of the Syrian Central Bank is highlighted by its potential positive impacts, including:

1. Improved Standard of Living: By stabilizing prices and promoting economic growth, the central bank can help improve the standard of living.
2. Attracting Investments: Currency and financial system stability can increase confidence among local and international investors, potentially leading to higher investments in the Syrian economy.
3. Boosting Trade: Stability in currency and appropriate monetary policies can contribute to improving the trade balance and increasing national revenues.

It can be said that the Central Bank of Syria is the cornerstone in efforts to revitalize and stimulate the Syrian economy, through its role in achieving financial and monetary stability, enhancing confidence in the banking system, and supporting productive sectors.

Developmental Questions:

There are many modern philosophical and scientific questions that aim to develop the central banking system. These questions address the challenges and opportunities faced by central banks in light of modern economic and technological developments. It is important for the Syrian decision-maker to give them attention, especially since we are in a stage of rebuilding from scratch.

1. Financial Technology (Fintech): How can central banks leverage financial technology to improve the efficiency of banking operations and ensure financial security? This includes using technologies such as blockchain and artificial intelligence to enhance transparency and reduce costs.
2. Digital Currencies: What role can Central Bank Digital Currencies (CBDCs) play in the financial system? How can central banks design and implement these currencies in a way that ensures financial stability and protects privacy?
3. Unconventional Monetary Policies: For instance, how can central banks develop unconventional monetary policies to address financial crises? This includes tools such as quantitative easing and negative interest rates, and their effects on economic growth and inflation.
4. Environmental Sustainability: How can central banks integrate environmental considerations into their monetary and financial policies? This includes supporting green financing and encouraging sustainable investments to address climate change.
5. Cybersecurity: How can central banks enhance cybersecurity to protect sensitive financial data and prevent cyberattacks? This includes developing robust cybersecurity strategies and collaborating with other financial institutions.
6. International Cooperation: How can international cooperation be strengthened to address global challenges such as financial crises and climate change? This includes coordinating monetary and fiscal policies and sharing information and expertise.

These questions reflect the challenges and opportunities facing central banks in the modern era, aiming to develop a central banking system that is more efficient, sustainable, and secure.

At the Economic Office of the Syrian Future Movement, we raise several questions that we draw attention to regarding the role of the Central Bank of Syria after the fall of the Assad regime, especially in light of the significant economic challenges facing the country. These challenges are represented by:

1. Rebuilding trust in the financial system: How can the Central Bank of Syria rebuild trust in the financial and banking system after years of corruption and mismanagement? What policies and measures should be taken to ensure transparency and accountability?
2. Effectively managing foreign reserves in light of a shortage of foreign currency liquidity: What strategies can be employed to enhance reserves and support the national currency?
3. Monetary policies during the transition period: What monetary policies should the Central Bank adopt to achieve economic stability during the political transition period? How can a balance be achieved between combating inflation and promoting economic growth?
4. Leveraging financial technology: How can the Central Bank of Syria benefit from financial technology to improve the efficiency of banking operations and ensure financial security? What challenges may arise from adopting these technologies in the Syrian context?
5. Integrating environmental considerations into monetary and financial policies: What policies can encourage green financing and sustainable investments to address climate change?

We believe that these questions reflect the significant challenges that the Central Bank of Syria will face in the post-Assad era, and aim to develop the central banking system to be more efficient, transparent, and sustainable. We see that posing these questions and seeking answers from a council of experts and specialized discussants is the first step toward rebuilding a strong national central bank. Our team at the Economic Office is ready to offer its expertise to serve this council, should it be established, which we highly recommend.

Conclusion:

We have previously clarified the central role that central banks play in achieving financial and monetary stability, and fostering economic growth in various countries. This is done through effective monetary policies, management of foreign currency reserves, and promoting transparency and accountability, ensuring that central banks are the cornerstone in building strong and sustainable economies.

As for the Central Bank of Syria, the challenges it faces after the fall of the Assad regime require innovative and effective strategies to rebuild trust in the financial system, stabilize the currency, and support productive sectors. Through international cooperation, the use of financial technology, and supporting green financing, we believe that the Central Bank of Syria can play a pivotal role in revitalizing and rejuvenating the Syrian economy.

Achieving these goals requires a strong commitment from the central bank, as well as close collaboration with international and local financial institutions, to ensure a sustainable and prosperous economic future for Syria.

Based on all of this, we at the Economic Office of the Syrian Future Movement recommend the following:

A. For the New Syrian Government:

1. Restructure the Central Bank: Strengthen its independence and ensure that the government does not intervene in its monetary policies.
2. Improve Transparency and Accountability: Publish periodic reports on monetary and financial policies to enhance trust between citizens and investors.
3. Reform the Financial System: Update financial and banking laws to align with international standards, and develop the financial infrastructure to facilitate banking operations.

B. For the Syrian People:

1. Financial Education: Promote financial awareness among citizens through educational and awareness programs about the importance of saving and investing.
2. Support Local Products: Encourage citizens to purchase local products to support the national economy and reduce dependence on imports.

C. For Syrian Economists:

1. Research and Development: Encourage economic research focused on improving monetary and financial policies.
2. Collaboration with International Institutions: Collaborate with international institutions and leverage global expertise in economics and banking to enhance local policies.

D. For the International Community and Arab Countries:

1. Provide Financial and Technical Support: Offer financial and technical assistance to the Syrian Central Bank to help implement necessary reforms.
2. Enhance Economic Cooperation: Strengthen economic and trade cooperation with Syria to support the stability of the Syrian economy.

In conclusion, we believe that these recommendations can contribute to enhancing the role of the Syrian Central Bank in achieving economic stability and sustainable growth, which is our goal in the new phase of building a new Syria.

Economic Office
Research and Studies Division
Research Team (Composed of the SFM’s researchers in collaboration with independent experts)
Articles
Syrian Future Movement