Arabic Currencies: From Peak to Plummet, How Did They Collapse?
In the early 1980s, Arab currencies, including those of non-oil-producing countries, represented a strong image in the foreign exchange market against foreign currencies.
It may be hard to imagine, but according to the International Bank database:
- The US dollar was worth less than 70 Egyptian pounds (just 70 piasters).
- 3.9 Syrian pounds.
- The Jordanian dinar was equivalent to 3 dollars.
- The Sudanese pound was equal to 2.6 dollars.
- The Somali shilling was equivalent to 3.4 dollars.
- The Iraqi dinar was equivalent to 2 dollars.
But the 1980s had their own dynamics. Several Arab countries followed a socialist economic system with state control. Most of their foreign transactions were conducted according to the mechanism of balanced trade, and external transactions were naturally limited due to the policy of promoting exports over imports through state-owned companies.
Back then, foreign travel and the need for foreign currencies were not a significant burden on foreign exchange reserves. Additionally, the monetary policy relied on an administratively set exchange rate for the local currency, so the exchange rates of Arab currencies did not operate according to supply and demand.
Before the liberalization of exchange rates in Arab countries during the 1980s, obtaining foreign currency required conditions that were not available to everyone. Banks did not meet the needs of foreign exchange seekers, resulting in the creation of a parallel foreign exchange market, which, although not highly active, did not significantly influence the exchange rate.
Fast forward to 2024, the official exchange rates for non-oil-producing Arab currencies are facing severe declines against foreign currencies.
The official exchange rates for the US dollar currently stand at:
- 30 Egyptian pounds.
- Around 546 Sudanese pounds.
- Around 1450 Iraqi dinars.
- 1114 Yemeni rials.
- 492 Syrian pounds.
- 571 Somali shillings.
- 3.1 Tunisian dinars.
A report from the Unified Arab Economic Overview for 2022 highlighted the depreciation of some Arab currencies in 2021:
- The Sudanese pound decreased in value by 588%.
- The Yemeni rial by 314%.
- The Libyan dinar by 224%.
- The Syrian pound by 140%.
Causes of Depreciation and Collapse
1. Corruption
High rates of corruption, especially in countries facing political and security instability, have contributed to the collapse of Arab currencies. A report by Transparency International in 2023 found that all countries whose currency collapsed or depreciated in the Arab region had increased corruption rates.
2. Increased Demand for Foreign Exchange
The early 1990s witnessed the onset of economic globalization, causing Arab economies to transition into market economies, altering their monetary, financial, and production policies. Non-oil-producing Arab countries entered reform programs with the International Monetary Fund, obligating them to liberalize their local currency exchange rates, presenting a new equation for Arab currencies.
Trade with the Arab world saw a significant increase. In 1990, Arab imports of goods and services amounted to $175.6 billion, increasing to $922.2 billion in 2020, constituting a 426% increase. Similarly, Arab exports increased from $307 billion in 2001 to $936 billion in 2020, representing a 204% growth.
However, non-oil-producing Arab countries faced deficits in their external trade relations, leading to increased demand for US dollars.
3. Political Instability
Alongside corruption and increased demand for foreign exchange, some Arab countries experienced significant political and security events. Events such as the collapse of state institutions in Somalia, continuous political upheaval in Sudan, and the armed conflicts in Libya, Syria, and Yemen, all adversely affected their economic situation.
4. Decrease in Foreign Reserves
The collapse or devaluation of Arab currencies has affected other economic indicators, such as foreign exchange reserves:
- Yemen’s foreign reserve fell from $8.1 billion in 2008 to $1.2 billion in 2022.
- Tunisia’s reserve decreased from $11.2 billion in 2009 to $8 billion in 2022.
- Libya’s reserve declined from $124 billion in 2012 to $86 billion in 2022.
Impact of the Collapsed Arab Currencies on Citizens
The collapse of Arab currencies in non-oil-producing countries has placed several burdens on citizens. One of the notable impacts is the depreciation of savings for those holding their savings in local currencies. For instance, the exchange rate of the dollar in Sudan jumped from approximately 40-50 pounds to over 500 pounds.
In Egypt, for example, the exchange rate was around 3.30 pounds at the beginning of the 21st century, but by 2024, it had increased to 30 pounds. Similar conditions persisted in other countries that witnessed currency devaluation or collapse.
The inevitable result of currency depreciation and collapse was inflation. In 2023, Sudan experienced 256% inflation, Lebanon 238%, Syria 135%, Egypt 23%, and Yemen 14.9%. These rates are higher than those recorded for 2023. Such inflation led to an increase in poverty. According to ESCWA’s survey of economic and social conditions for 2021-2022, 35.3% of the total Arab population (excluding the Gulf countries and Libya) lived below the poverty line, totaling up to 130 million people.
The Future of Collapsed Currencies
The value of a currency accurately reflects the economic condition of any economy. There is no expectation for the exchange rates of collapsed Arab currencies to improve in the near or medium term due to the persistent state of political and security instability.
The overall weak performance of economic indicators, such as fragile GDP, continued trade deficits, budget deficits, and depleted foreign currency reserves, diminishes hopes for an improvement in the exchange rate of collapsed or devalued Arab currencies.
Even in countries like Iraq and Libya, despite their good share of foreign exchange inflows due to oil exports, high corruption rates hinder economic development and improved exchange rates. Countries like Egypt and Tunisia, with agreements with the International Monetary Fund, are not expected to see an improvement in their exchange rates in the upcoming period.
For countries in conflict, including Syria and Yemen, the absence of state authority and, consequently, the absence of financial authority control over exchange rates, open market mechanisms, reserve balances, and control of incoming flows, alongside the emergence of currency speculation, contribute to the persistent depreciation of these currencies.
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