| • During the Ottoman Occupation |
| • During the French Mandate |
| • During World War II |
| • Stages of Monetary Independence in Syria |
Until World War I, Syria was under Ottoman rule, and its currency was the Ottoman currency. Initially based on the bimetallic standard, it transitioned to the gold standard in 1888, where a monetary reform was carried out. The Ottoman golden lira became the primary monetary unit in the country, valued at four gold dollars and forty cents, divided into one hundred gold piasters. It weighed 7 grams and 166 milligrams, with a caliber of 0.9165. Alongside this primary monetary unit, auxiliary currencies made of cheaper metals such as silver and copper were also in circulation, primarily for small payments. Larger transactions were conducted using Ottoman gold lira, with English and French gold lira also utilized, albeit to a lesser extent.
As for Turkish paper money, its circulation was quite limited. The authority to issue paper currency was granted to the Imperial Ottoman Bank, established as a French-English venture in 1862. The bank issued notes backed by gold reserves at a rate of approximately 200%, ensuring their redeemability in gold. However, their usage remained modest due to the prevailing preference for gold transactions among the populace.
During World War I, Turkey suspended the use of gold for transactions, ceased the redemption of Turkish paper currency in gold, and mandated the use of paper money. When the Ottoman Bank declined to lend to the Turkish government for financing the war against France and England, the government issued seven successive issues of currency between 1915 and 1918. The initial issue was partially backed by gold reserves, while the subsequent issues were backed by bonds from the German and Austrian treasuries.
Issuance of currency not adequately backed by reserves contributed to the depreciation of the purchasing power of Turkish paper money, resulting in an 80% loss of its value. This led individuals to avoid using paper currency and instead hoard gold. The quantity of gold increased significantly in the provinces of the empire due to the Turkish government's practice of paying for supplies purchased from the provinces in gold.
After the entry of Allied forces into Syria in 1918, Turkish paper currency was discontinued, and the Egyptian pound was mandated as the primary circulating currency. Concurrently, various gold coins from different origins, as well as Turkish, English, Indian, and Egyptian silver coins, continued to circulate.
The Egyptian pound became the de facto currency in the coastal regions of Syria. However, within Syria's interior, transactions remained predominantly in gold, particularly the Ottoman lira. This preference stemmed from the population's unfamiliarity with paper money and the concentration of occupation authorities in coastal cities. The circulation of the Egyptian pound persisted until 31 March 1920. After Syria came under the French mandate, the High Commissioner issued a decree abolishing the use of the Egyptian pound and introducing Syrian-Lebanese paper currency, which was pegged to the French franc. "The Bank of Syria" was granted the authority to issue this currency, and it commenced issuing banknotes in May 1920.
However, the decree of 31 March 1920 did not extend to the interior region, where the Arab Kingdom under King Faisal I had been established. On 12 April 1920, the Faisalid government enacted legislation outlining the monetary system of the Faisal era. This system adhered to the bimetallic standard, with the dinar established as the primary monetary unit. The dinar weighed 6.45161 grams with a purity of 0.900, and it was subdivided into 100 piasters. The legislation also mandated the minting of the Arab riyal, a 25-gram silver coin with a purity of 0.800, valued at 25 piasters each. While the Faisalid government allowed the Egyptian currency to retain its legal tender status, its tenure was short-lived. Following the Battle of Maysalun on 24 July 1920, French forces occupied the interior regions. The High Commissioner issued the first decree on 9 August 1920, expanding the applicability of the existing monetary system from the coastal to the interior regions of Syria.
The decree of 31 March 1920 established the Syrian-Lebanese pound as the primary currency unit in the country. The backing for this currency primarily consisted of French francs, overshadowing other elements of reserve. The pound was subdivided into 100 piasters and was redeemable, allowing holders to exchange it for checks drawn on Paris at a rate of 20 French francs.
The Mandate authorities withdrew Egyptian pounds from circulation through banks and army funds, facilitating the exchange of Egyptian currency for Syrian currency at a fixed exchange rate of 325 Syrian piasters for each Egyptian pound. Through the issuance of Syrian currency and the withdrawal of the Egyptian pound from circulation during this period, France achieved two significant objectives:
The French authorities can now finance their armies using Syrian currency. The continued circulation of the Egyptian pound necessitates the French authorities' purchase of Egyptian pounds with sterling pounds or gold, depleting their reserves and affecting the exchange rate of the franc in currency markets.
Withdrawing the Egyptian pound from circulation, rendering it obsolete, and substituting it with Syrian pounds resulted in France accumulating a significant amount of withdrawn Egyptian currency. This bolstered its foreign exchange reserves, enabling it to fulfill its financial obligations within the sterling area.
January 1924 Agreement
It was untenable for the monetary system in Syria and Lebanon to rely solely on decisions issued by the French High Commissioner, nor was it acceptable for the issuance rights to be granted to a foreign bank by an occupation decree without local government approval. Consequently, negotiations commenced under the supervision of the High Commissioner between the local governments and the "Bank of Syria". On 23 January 1924, these negotiations culminated in the signing of a monetary agreement. Under this agreement, the local governments recognized the Syrian-Lebanese currency and authorized the "Bank of Syria," renamed the "Bank of Syria and Lebanon," to issue currency for a period of 15 years, starting from 1 April 1924. The agreement also affirmed the existing monetary framework established by the High Commissioner's decision in 1920. Despite strong opposition from the people and their representatives in the Federation Council since the signing governments were products of the mandate, the agreement was concluded under pressure from the mandate authorities.
February 1938 Agreement
Negotiations commenced with the governments of Syria and Lebanon to renew the 1924 agreement two years before its expiration on 31 March 1939. These negotiations led to the signing of a separate agreement with the Lebanese government on 29 May 1937. Under this agreement, the issuance privilege of the "Bank of Syria and Lebanon" in Lebanon was renewed for a period of 25 years, starting from 1 April 1939.
The agreement with the Syrian side progressed slowly and faced numerous challenges. However, on 25 February 1938, the two parties reached a draft agreement. This draft was not presented to the Syrian Parliament due to the suspension of constitutional processes by the mandate authorities on 8 July 1938. Instead, governance was transferred to a board of directors with executive authority, and legislative powers were exercised through the issuance of legislative decrees ratified by the High Commissioner. On 29 March 1939, two days before the expiration of the 1924 Agreement, the French High Commissioner issued a decision extending the validity of the agreement until March 1964. Subsequently, the Government of Directors issued a decree on 9 September 1939, endorsing the 25 February Agreement and its accompanying Basic Bank System. The entry into force of the agreement was postponed from 1 April 1939 to 1 January 1940.
The Foundations of the Syrian Monetary System Between the 1924 and 1938 Agreements:
The price of the Syrian-Lebanese pound was set in the aforementioned agreements between the Syrian and Lebanese governments and the Bank of Syria and Lebanon in relation to the French franc, at a rate of 20 francs per pound. The bank intervened in the money market, buying and selling Syrian pounds in exchange for the franc at this price.
Coverage Elements in the 1924 Agreement
Article Eight of the 1924 Agreement stipulated that coverage against the issued liras should consist of:
1) Gold or obligations of foreign governments convertible into gold.
2) Foreign or local commercial papers, with a maturity not exceeding 90 days. Foreign commercial papers must bear two acceptable signatures, while local commercial papers must bear at least three acceptable signatures.
3) A mandatory coverage which includes deposits in French francs held on demand in an account with the French treasury, not exceeding one-third of the issued cash. The French treasury is required to pay interest on these deposits at a rate of no less than 1.5%.
4) Optional coverage which is provided in francs deposited upon request into an account held by the Bank of Syria and Lebanon with the French treasury. Interest on these deposits must be at least equivalent to that paid on standard French deposits. This optional coverage, along with coverage in the form of commercial papers, must not exceed 22% of the issued cash.
5) bonds issued by the French government or guaranteed by it are acceptable forms of coverage. These bonds must have a maturity period not exceeding two years and must be deposited with the Bank of France.
Coverage Elements in the 1938 Agreement:
The 1938 agreement delineated coverage elements with greater precision compared to its predecessor, dividing them into two categories: mandatory and optional. The mandatory elements comprise gold, initially set at 10% and gradually increasing to 30%, along with a required deposit in French francs. This deposit is to be held in the central fund of the French Treasury in Paris, accruing an annual interest of no less than 1.75%. The agreement specified that this deposit should constitute 25% to 26% of the total circulating papers. Additionally, an interest-free advance of 250,000 Syrian pounds was mandated for the Syrian government.
Regarding the optional coverage elements, they consist of:
Characteristics of Coverage in the 1924 and 1938 Agreements
It is evident from the comparison that the 1924 agreement prevailed throughout much of the interwar period, heavily relying on assets denominated in French francs for coverage. While the agreement mentioned the inclusion of gold or foreign notes convertible into gold, it did not specify a minimum percentage for these assets. Consequently, the Bank of Syria and Lebanon did not have to incorporate gold or foreign exchangeable notes into the coverage, and the average gold value comprised merely 4% of the coverage during the agreement's term.
The 1938 agreement, in contrast to its predecessor, introduced several notable deviations. Firstly, it abolished the upper limit for monetary circulation, a feature present in the 1924 agreement which capped circulation at 25 million Syrian-Lebanese pounds. Additionally, the 1938 agreement differentiated, albeit formally, between the Syrian pound and the Lebanese pound. Under this new agreement, the Bank of Syria and Lebanon became subject to taxation, whereas it had previously enjoyed exemption.
Moreover, the 1938 agreement mandated that any profit resulting from the appreciation in the value of gold coverage would be allocated to the governments of Syria and Lebanon. Furthermore, it stipulated that regular profits from the coverage would be shared between the bank and the aforementioned governments.
The Second World War exerted a multitude of effects, impacting France and its colonies, including Syria, both economically and politically. Due to its reliance on France, the primary headquarters of the Bank of Syria and Lebanon was relocated from Paris to Beirut. Additionally, the French High Commissioner modified the 1938 agreement through decisions and decrees issued via the board of directors. These directives primarily addressed the elements comprising the cash coverage.
These amendments were aimed at enabling the Bank of Syria and Lebanon to fulfill the demands of occupying armies for requisite banknotes. Consequently, the proportion of commercial bonds included in the coverage was raised to 25% of the circulating money supply, and all loans extended by the bank to the state were incorporated into the coverage.
All the aforementioned measures were aimed at streamlining issuance operations, allowing the bank to conduct issuances without necessarily covering them with francs or other currencies. Instead, it could utilize alternative means at its disposal. Conversely, following the occupation of Syria and Lebanon by Allied armies, the region experienced significant expenditure of sterling cash to fulfill the armies' demands for local products and goods. While the British armies initially faced the necessity of paying a considerable portion of their expenses in Syrian pounds during their presence in Syria, they ultimately opted to sell pounds to exchange offices to obtain Syrian Pounds.
The exchange office facilitated the transfer of sterling pounds and various currencies it acquired to the central treasury of Free France, in exchange for French francs. French francs constituted 98% of the currency in circulation. In addition, an amount totaling 800 million Syrian pounds was similarly constituted. Consequently, an equivalent sum was requisitioned by France for Syrian production. Following the March 1941 agreement between the French and British governments, the exchange rate between their respective currencies was established. The agreement outlined its potential applicability to all territories under the jurisdiction of the Defense Council of the French Empire, both existing and prospective.
After the Allies occupied Syria, the exchange rate was established at 883.125 Syrian piasters per British pound. The expenses incurred by the allied armies led to significant inflation in trade volumes and bank deposits. According to a report by the Board of Directors of for the years 1941-1945, the Bank of Syria and Lebanon estimates that 7/8 of this inflation resulted from the substantial quantities of Syrian pounds demanded by the allied armies from the exchange office in exchange for foreign currencies.
It is noteworthy that the increased circulation of money due to the armies' expenses was not accompanied by corresponding imports from abroad. Consequently, prices began to rise continuously, and the effects of monetary inflation became evident in the country. There was no mechanism in place to allow local capital to leave the country, thereby alleviating pressure on the local market. Consequently, a decision was made to permit such capital outflows, resulting in a reduction in monetary inflation, as approximately 400 million Syrian pounds left the country within three years.
January 1944 Agreement:
The financial agreement signed between Syria, Lebanon, Britain, and France on 25 January 1944, marks a pivotal stage in the history of the Syrian monetary system. On this date, an agreement was signed between France and Britain, followed by a subsequent agreement between Syria, Lebanon, and France, signed in Damascus on 9 February 1944.
The Damascus Agreement stipulated the following:
The exchange rate of the Syrian pound in relation to the pound sterling remains unchanged, at 883 Syrian piasters per pound sterling. However, due to the recent British-French agreement modifying the parity rate between their currencies to 200 francs per sterling, as opposed to the previous 176.625 francs according to the March 1941 agreement, the new parity between the franc and the Syrian pound stands at 22.65 French francs per Syrian pound.
The freedom to purchase pound sterling remains accessible to residents of Syria and Lebanon, subject to prior consultation with the respective governments of both nations. Any adjustment to the exchange rate of the Syrian pound in relation to sterling shall not occur without consultation with the Syrian and Lebanese governments.
Subsequently, a letter from General Catroux, the head of government in both Syria and Lebanon, was issued, endorsing the terms of the agreement. The letter also reaffirmed the commitment to restore gold coverage to the Bank of Syria and Lebanon.
The letter is committed to stabilizing the assets of the Bank of Syria and Lebanon by compensating for any decrease in value of the franc relative to the pound sterling. Specifically, the French government would augment the bank's franc assets to ensure their continual and lasting maintenance of value in relation to the pound sterling.
Denunciation of the January 1944 Agreement:
On 25 December 1945, when the value of the French franc decreased, the French government was obligated to fulfill its commitments outlined in the January 1944 agreement. Consequently, it increased the number of francs allocated to support the Syrian currency, ensuring that the coverage account regained its original value in sterling despite the reduction.
In December 1946, France issued a new memorandum to Syria, officially annulling the 1944 agreement. This memorandum terminated the reliance of the Syrian pound on the pound sterling, reintroducing a reliance on the franc indirectly, as the elements of coverage were denominated in French francs.
At the individual transaction level, there was a continued trend of asset transfers from Syrian pounds to pound sterling, a matter of concern for France, particularly as Syria approached political independence. In March 1946, a memorandum was dispatched to the Syrian government, stipulating the cessation of the freedom to purchase sterling and the nullification of the parity guarantee with the pound sterling. Additionally, France refused to offer compensation for the devaluation of the French franc. The tone of the memorandum resembled more of an ultimatum from a debtor to a creditor, expressing reluctance to fulfill financial obligations.
February 1949 Agreement:
Syria and Lebanon engaged in negotiations with France regarding the independence of the Syrian-Lebanese pound and the resolution of debts owed to France. These negotiations persisted until January 1948 when France devalued its currency. While Lebanon accepted the agreement with France, Syria rejected it. This divergence in approaches toward French policies became central to the divergence between the Syrian and Lebanese currencies. Consequently, Syria exited the franc zone in January 1948 and adjusted the exchange rate of the lira against the franc, prompting France to finalize an agreement with Syria on 8 February 1949, confirming the detachment of the Syrian pound from the French franc. One of the outcomes of the separation between the Syrian pound and the Lebanese pound was the implementation of individual economic and currency regulatory measures by each country. Lebanon turned to a system of economic freedom due to its reliance on foreign trade and invisible exports, while Syria turned to a system of customs protection to protect the emerging local industry. The separation of the monetary union between Syria and Lebanon was the beginning of the path to the separation of the economic unity between the two countries.
Syria implemented foreign exchange control systems in its dealings with Lebanon as of 14 March 1950.
The Exchange Policy Between the Agreements of 1944 and 1949:
In accordance with the 1944 agreement, Syria successfully liberated its currency from dependence on the weak French franc and instead pegged its lira to the strong pound sterling. However, despite this shift, Syria did not pursue an independent exchange rate policy between 1944 and the end of January 1948. Following Syria's departure from the franc zone, it gained the capacity to pursue an independent exchange rate policy. This meant that the Syrian government became the sole authority in determining the exchange rate policy to be followed. It now possesses the authority, vested in the exchange rate office, to formulate and implement this policy.
