Stages of Monetary Independence in Syria

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.