Troubled Currencies Project Update: Syria, Iran, and Egypt

Syria:  Since August 26,  when U.S. Secretary of State John Kerry began laying the groundwork for military intervention in Syria, the Syrian pound (SYP) has taken a beating on the black market. Indeed, the SYP has lost 24.07 percent of its value against the U.S. dollar (USD) in the two days since Kerry’s announcement. Currently, the exchange rate sits at 270 SYP/USD, yielding an implied annual inflation rate of 291.88 percent. In countries with troubled currencies, there is no better measure of economic expectations than the black-market exchange rate. The recent deterioration in the SYP/USD exchange rate clearly indicates that Syrians are anticipating Western military intervention in the near term.

Iran: The initial weeks of the Rouhani presidency have seen renewed economic confidence, as reflected by the Iranian rial’s (IRR) black-market exchange rate. The new central bank governor, Valiollah Seif, has stated that his primary concerns are to rein in inflation and boost economic stability. Over the past few weeks, the rial has strengthened on the black-market, and inflation has moderated somewhat. That said, recent international saber-rattling over Syria clearly has spooked the Iranian public. In the two days since Secretary Kerry first made his case for intervention in Syria, the value of the Iranian rial has dropped 4.74 percent on the black market, to 32,700 IRR/USD. This yields an implied annual inflation rate of 52.10 percent, up from 44.89 percent, prior to Kerry’s announcement.

Egypt: Since the fall of the Morsi government, public confidence and support for the military regime has boosted the value of the Egyptian pound (EGP). Prior to the military takeover, the black-market exchange rate sat at 7.6 EGP/USD. Since Morsi’s ouster, the pound has appreciated by 7.34 percent, to 7.08 EGP/USD. This yields a current implied annual inflation rate of 18.62 percent, down from 27.85 percent in the final days of the Morsi government. In recent weeks, the Central Bank has been auctioning off up to $40 million in foreign exchange, three times per week. This rather modest sum has adequately met the demand for foreign exchange at rates close to the official exchange rate of 6.99 EGP/USD.

For more information on troubled currencies in these countries and others, see The Troubled Currencies Project.

Author Steve H. Hanke