Economy

Earlier this year, the Central Bank of Syria announced that it would cease to peg the Syrian Pound to the US Dollar. Instead, it would peg the national currency to Special Drawing Rights (SDR), which is the accounting currency of the International Monetary Fund (IMF). The SDR is an artificial «basket» currency used by the IMF for internal accounting purposes. SDR was basically created to replace gold in large international transactions. Initially, the value of the SDR was defined in terms of one US-$, which in turn was defined in terms of an ounce of gold. Since July 1974, determination of the SDR has been based on a basket of major currencies (namely four since 1981), being: the U.S. dollar, Euro, Japanese Yen, and British Pound Sterling. Initially, the basket had been composed of 16 different currencies. Every five years the IMF determines which five currencies will enter the basket, and what weight will be applied to each currency. The exchange rates used by the IMF to calculate the official SDR are the noon rates at the London Foreign Exchange Market. The Syrian decision comes after decades of informal and de facto pegging of the Syrian Pound to the US Dollar. Other Arab states, like Kuwait, have already taken similar measures. The move is believed to be a step in the right direction, aligned with other measures aimed at controlling and managing the foreign exchange market. The step is expected to lead to more stability in the value of the Syrian Pound against other currencies and better reflect the external trade of the country. It will protect the Syrian Pound from the volatility of the US currency, which is often due to international political and economic developments. The step will also lead to more independence in the monetary policy of Syria. Many also believe that the inflation rate in Syria, which is running at two digits, is partially due to the continuous depreciation of the value of the US currency against major international currencies.