Central Bank Brings Forex Rate Closer to Black Market, UN Agencies and NGOs to Benefit

The Central Bank of Syria (CBS) recently devalued the exchange rate for incoming remittances by 32 percent, bringing it closer to the black market rate. After the earthquake devastated parts of Turkey and Syria, it also enabled UN agencies and humanitarian organisations to use the new rate for earthquake-related donations and funds. 

The decision will likely reduce the role of the black market for the first time in years.

On February 01, per Decision No. 144, the CBS split the Banks and Financial Institutions Mid Foreign Exchange Rate (also known as the Banks and Financial Institutions rate) into two rates – the Money Transfer and Cash Foreign Exchange (MTC) rate and the Banks Exchange rate – and issued a new rate for the former.

The Banks and Financial Institutions rate, which currently stands at SYP 4,522 per dollar and was first issued in 2012, was used by private banks and financial institutions to conduct foreign exchange transactions, including financing imports and exports. 

The MTC rate will change regularly depending on the black market rate, which the CBS referred to as the “trade rate” in its decision. 

On February 01, the rate stood at SYP 6,650 per US dollar, a 48 percent increase in the value of the dollar compared with the original rate of SYP 4,522. The rate of the dollar rose to SYP 6,900 on February 07, a day after the earthquake, and now stands at SYP 6,600. The current rate is only 8 percent lower than the black market rate of SYP 7,150 (as of February 14 in the evening) and 47 percent higher than the UN rate of SYP 4,500, which UN organisations and humanitarian organisations have been forced to use for funds spent in the country. 

Local money exchange companies, Western Union agents, and local banks will use the MTC rate to disburse incoming personal and commercial remittances and purchase foreign currency from individuals. Money exchange companies will also use the rate to prepare their own budgets. 

On February 09, days after the earthquake devastated Syria and Turkey, the CBS amended its decision to make humanitarian organisations, UN agencies, and other actors working in earthquake-related disaster relief eligible to receive donations and funding via local banks using the MTC rate. These actors are still expected to use the much less attractive UN rate of SYP 4,500 per dollar for funds that are not intended for earthquake aid efforts.

Several black market brokers told The Syria Report that the new rate issued by the CBS has reined in the black market rate. Meanwhile, photos of Syrians waiting in long queues inside local banks to sell their dollars at the new rate went viral on social media.

The second rate, the Banks Exchange Rate, will continue using the original Banks and Financial Institutions rate – SYP 4,522 per dollar for bank transactions and SYP 4,500 for companies and entities that are not eligible to benefit from the MTC rate. The criteria for eligibility, according to the details of the decision, remain ambiguous. 

On February 02, the CBS published a statement on its Facebook page explaining its recent decisions aimed to attract more remittances to formal money transfer channels, limit the depreciation in the exchange rate and the rise in prices, and facilitate exports and imports. 

The decision to institute new rates also appears to be part of the government’s larger efforts to curb the black market rate, which rose to SYP 7,150 per dollar on February 14 from SYP 6,000 in early December 2022, according to SP Today, which tracks the black market rate. 

On January 29, the CBS lifted the daily withdrawal limit for individuals and companies exchanging foreign currency or receiving remittances. For those withdrawing money from ATMs and personal bank accounts, the withdrawal limit remains in place. 

During the conflict, the government restricted daily withdrawals of Syrian pounds to strengthen the currency and reduce liquidity. Reducing the supply of Syrian pounds makes the local currency rarer and, hence, more valuable. The CBS first imposed a cap of SYP 10 million per day in 2019 and later revised the limit multiple times. As of late January 2023, it stands at SYP 15 million.

In addition to the two aforementioned rates, the CBS sets several others: 

• The Official rate, which is the core rate that the Syrian government uses for the state budget and for public sector transactions, such as financing imports and exports of the public sector. On January 01, the CBS increased the rate to SYP 3,030 from SYP 2,525.
• The United Nations rate was issued by the CBS in December 2011 and is used by UN agencies and international non-governmental organisations operating in Syria. In January, the CBS raised the rate to SYP 4,500 from SYP 3,000.
• The Military Service Exemption Rate is for Syrian men who want to pay the required fee to be exempted from the mandatory military service. In January 2022, the rate was set at SYP 2,525 per US dollar.
• The Customs and Airline Transactions rate has been set at SYP 4,000 per US dollar since January 01, from SYP 3,000 on September 19, 2022; SYP 2,800 on April 30, 2022; and SYP 2,500 on April 16, 2021.
• Lastly, the so-called Platform Rate is used by foreign exchange companies to sell dollars to importers. The rate’s value is not publicly disclosed but has often been closer to the black market rate.