Dollarization in the Syrian Economy: Causes, Impacts, and Solutions

Dollarization in the Syrian economy has become a tangible daily phenomenon: real estate, vehicles, and even wages are priced in dollars. In this analysis, we dissect the causes and impacts of this phenomenon.

What is Dollarization? Dollarization is the replacement of the national currency with a foreign currency (usually the dollar) in its three primary functions: as a medium of exchange, a store of value, and a unit of account. It typically begins with the store-of-value function and subsequently expands.

Why Does It Occur?

• Chronic High Inflation: When a currency rapidly loses its purchasing power, individuals flee to a more stable currency.

• Sharp Exchange Rate Volatility: Pricing in the local currency becomes risky for merchants, prompting them to fix prices in dollars.

• External Remittances: A continuous inflow of foreign currency fuels direct transactions using it.

Impacts on the Economy and Citizens Dollarization weakens the effectiveness of monetary policy—the Central Bank loses a portion of its control over the actual money supply. For citizens earning in the local currency, pricing in dollars means an additional erosion of purchasing power with every rise in the dollar rate. Monitor the dollar rate today to understand the current pressure.

How Did Other Countries Address It? Successful experiences (such as Turkey in the first decade of the millennium) combined strict monetary policy to curb inflation, positive real interest rates on local currency deposits, and sustained macroeconomic stability over years—trust is built slowly and collapses quickly.

For more, read about the role of remittances in the economy and protecting savings from inflation.”