Between Shredded Banknotes and Shattered Trust: Syria's Monetary Crisis Deepens

Damascus has begun a tangible, physical response to its profound monetary crisis: the systematic destruction of old banknotes collected during a recent currency exchange. This operation, supervised by financial oversight bodies and coordinated with the Central Bank of Syria, aims to "update the money supply" and "protect the financial system." Yet, this technical procedure unfolds against the alarming escalation of a liquidity crisis that has transformed from a procedural hurdle into a genuine threat to overall economic stability.

The controversy ignited by recent directives from the Central Bank Governor, Abdul Qader Hasriya, underscores the tension. While the new monetary administration seeks to distance itself from the past, its policies perpetuate restrictive measures that prevent depositors from accessing their funds, citing the protection of the exchange rate and inflation control as justifications.

Escalation and Concrete Impacts

A critical analysis reveals a problematic confusion in priorities. The directive obligating banks to prioritize salary payments over honoring deposit withdrawals—despite its social dimension—reinforces grave doubts about the sanctity of private funds. It fuels public fear that deposits will be used to cover the government's liquidity deficit, eroding the foundational trust of banking.

This policy confusion has pushed economic activity into a dark tunnel. Unofficial data indicates a dramatic decline in available market liquidity, by as much as 40%, creating a severe "suffocation of cash flow." The immediate consequence has been a sharp jump in the prices of basic commodities, estimated at approximately 25%, directly punishing household budgets.

The Hemorrhage of Confidence

The real dilemma is now the "hemorrhaging of confidence." Data revealing that withdrawals have doubled the volume of new deposits confirms a stark reality: the public increasingly views banks not as financial partners, but as closed coffers. This behavioral shift is the core of the crisis. As money flees the banking system for the safety of "pillows," hard currency, and gold, the velocity of circulation plummets, paralyzing the formal economy.

Experts point to a dangerous asymmetry in the ongoing currency exchange process: the central bank appears to be withdrawing old cash from circulation at a faster rate than it is injecting new liquidity. This transforms banks from potential engines of growth into mere facades for managing scarcity, deepening the cycle of distrust.

Destroying Old Notes, Confronting a New Reality

The ongoing destruction of old banknotes, therefore, symbolizes a technical fix applied to a profound structural wound. While aimed at controlling the physical money supply, it fails to address the accelerating flight of confidence. The central bank faces a pivotal choice: to remain a "punitive regulator" brandishing sanctions, or to transform into an "economic stimulant" that reignites trust.

Proposed solutions focus on this necessary shift:

Guaranteed Liquidity & Lifting Restrictions: The immediate step must be a genuine lifting of withdrawal restrictions, backed by the central bank acting as a true Lender of Last Resort. Confidence will only return when people feel their money is accessible.

Digital Leap: Reducing dependence on physical cash through widespread electronic payments is crucial to keep money circulating within the formal banking system, mitigating future cash crunches.

Incentivizing Return: Offering positive real interest rates on deposits could begin to offset inflation risks and lure hoarded capital back into official channels.

Ultimately, the shredded old banknotes are a metaphor for a fractured compact. The bet on restoring confidence remains a losing one unless technical measures are accompanied by a fundamental policy reversal. The economy does not recover through the threat of sanctions, but through guaranteeing the free movement of capital. The current approach, critics warn, resembles "artificial resuscitation" that cannot long withstand the harsh realities of a market suffocated by distrust.

Mohamed Hamdan