Washington's decision to arm opponents of Syrian President Bashar al-Assad and reports of Gulf military aid to rebels have sent the Syrian currency plunging to a new record low, currency dealers and bankers said on Monday.
Traders across Syria reported widely fluctuating rates and two currency dealers in Damascus, where the pound appeared to be hit hardest, said it fell below 200 to the dollar for the first time in what one described as panic buying of the U.S. currency.
On Monday evening the pound traded at 205 to the dollar, down 20 percent in four days and 77 percent down since the start of the anti-Assad uprising in March 2011 when it was at 47.
"It's total chaos. Demand for the dollar has increased with the news...of the Americans preparing military help to rebels," said Assem Salman, an exchange dealer in the bustling Sabaa Baahrat in downtown Damascus
"Anyone who gives you a price, don't take his word. The dollar has gone mad and reached the 200 level ... Nothing seems to stop this dollar chaos," he said by phone from Damascus.
Dealers said the turmoil was fuelled by White House comments that Washington will step up military aid for Syrian rebels, hardening stances by the Arab world's heavyweights Saudi Arabia and Egypt, and calls by Sunni Muslim clerics for holy war.
Civil war now rages in most of Syria's provinces and the United Nations says more than 90,000 people have been killed in two years of violence which have caused economic damage estimated at tens of billions of dollars.
Dealers blame the progressive fall in the pound since March on the failure of Central Bank Governor Adeeb Mayaleh to back up his promises to support the pound, which stood at around 100 to the dollar at the end of last year.
The sharp fall since then, after nearly two years of more managed decline, came despite Mayaleh's comments that Syria was getting financial aid from its allies Russia and Iran and market talk Tehran had deposited at least $2 billion in the central bank, according to some dealers.
The central bank's injection of 100 million euros also failed to stem the fall, with some dealers saying the requirements for taking up the money were so burdensome that only 5 million euros reached the market.
Mayaleh said economic accords signed in Damascus with Iran on Monday would help businesses fund imports to Syria and described the latest exchange rate as "unreal, illusionary and speculative".
"It's down to speculators intimidating people and exploiting people's needs (for currency). People have needs and we will respond to them," he told Syrian television.
NO LONGER IN STATE'S HANDS
In the last two months the central bank had even stopped selling the two to three million dollars it had been offering to leading exchange firms and which was credited with reducing rate fluctuations and holding back the pound from further slides.
One banker said this was a sign the authorities may no longer have sufficient foreign reserves, which bankers say have fallen substantially from a record $18 billion before the crisis, to bolster the pound.
Others said it appeared the priority of defending the local currency was now overtaken by the pressing need to finance crucial imports of subsidised foodstuffs to strengthen loyalty in state-controlled areas.
"Control of the pound is no longer in the hands of the state," said one banker in a foreign-owned subsidiary.
Bankers and exchange dealers said the authorities were effectively leaving the pound to float after easing a tight currency regime since last year and narrowing the differential with the market in an attempt to curb wild fluctuations.
"There is no longer any intervention rate, they are effectively telling the market to price as you want and work on that. They are not limiting us with anything," said Aboud Yousef, a chief dealer who works in a licensed exchange firm.
Bankers and currency traders contacted in Damascus said the central bank was now turning a blind eye to official exchange dealers selling at market prices that were at least 10 percent higher than a daily benchmark the central bank sets after averaging dealer quotes.
Such a move would have risked tough retaliation by Mayaleh against currency traders, several of whom have had their licenses revoked and were heavily fined last year.
"We are now following the market, not the opposite and even the central bank now is acknowledging this," Anas Salamah, one exchange dealer in a licensed currency firm, said.
Bankers say the pound's plunge exposed the vulnerability of a risky policy of non-intervention based on the assumption that pressures on the pound remained manageable in the short term.
It also reflected heightened demand by panicky Syrians now hoarding the dollar as a hedge in a battered economy that was increasingly dollarised.
"This is not speculative trading. It's panic buying of the dollar by many people who no longer have faith in the pound or the authorities ability to protect it," said an exchange dealer in Mezze district who gave his first name as Abdul Rahman.
The fall in the pound's purchasing power has also ramped up the prices of most commodities across Syria, bankers and economists say.