Cash Crash: Syria’s economic collapse and the fragmentation of the state

The Syrian economy is currently witnessing unprecedented volatility. To date, analysts have predominantly focused on the impact this crash has had on Syrian households, which are now facing acute financial pressure as poverty rates climb toward 90 percent, food insecurity skyrockets, and famine becomes an ominous possibility. Major political consequences are also coming into view, and significant attention has been given to the possibility that volatility will destabilize and ultimately threaten the regime of Bashar AlAssad. Although these assessments tend to underestimate the staying power of the Syrian state apparatus, economic volatility in Syria certainly will have an impact on the arc of the conflict itself.

Already, meteoric rates of inflation have splintered the Syrian economy, and in the process they have hardened the regional divisions that exist among territorial actors. Of particular note, this economic instability has accelerated the adoption of foreign currencies in areas that are outside the Government of Syria’s physical control. In northwest and northeast Syria, respectively, Turkish lira and U.S. dollars have become sources of bedrock fiscal stability as wider economic turmoil persists. Crucially, the impact of this shift is not only financial. In these areas, foreign currencies have become indexes for highly important commodities, salaries, and consumer goods, while further potential exists for deep impact on a wide spectrum of matters related to commerce and local administration. However, as these areas find refuge in foreign currencies, there has been no respite for Government-held areas, which have been left exposed to volatility. Collectively, this set of dynamics can be summarized as the “dollarization” of the northeast, the “lira-fication” of the northwest, and the immiseration of the rest.

This brief report is a preliminary attempt to understand the impact of these shifts in currency use throughout Syria. As the respective trajectories of each of Syria’s three territorial regions diverge, ordinary Syrians will be forced to adapt to new realities, and novel patterns of displacement, crossline commerce, and humanitarian needs are likely to emerge. Left unchecked, this fragmentation may compound the disparities in humanitarian needs that already exist across conflict lines, and it may also raise additional barriers to the donor community’s incipient hopes of breaking down the regional divisions that govern the response itself.