The year 2022 witnessed an unprecedented decline in the exchange rates of a number of national currencies in some Middle Eastern countries, most notably Egypt, Türkiye, Sudan and Iraq. The value of some of the region’s currencies fell against the US dollar, while others saw very sharp deteriorations, as is the case of the Iranian rial and the Lebanese pound.
Despite the diversity of the reasons that led to these declines, including political and economic conditions, and the monetary policy of central banks, a number of common factors contributed to this situation, mainly the continuous and accelerated rise in interest rates and mounting inflation, as well as political tensions and black market speculations and manipulations.
According to a study conducted by Asharq Al-Awsat, the region’s currencies have significantly eroded in value. The Egyptian pound has lost 58 percent of its value against the US dollar since the beginning of 2022.
Similarly, the Turkish lira fell against the dollar by 41 percent, and the Iraqi dinar recorded a decline against the dollar with a high fluctuation rate of 14 percent.
The exchange rate of the Iranian rial witnessed severe turmoil at the end of this year, sharply declining before returning to stability with a slight loss of 0.61 percent. The Sudanese pound recorded during 2022 a decline against the dollar by more than 30 percent, while the value of the Lebanese pound plunged to less than a third of the official rate.
Speculation and smuggling
In addition to the fragility of the economies in the region, the global increase of interest rates was accompanied by local factors that put further pressure on national currencies, including market speculation and smuggling.
Lebanon’s Central Bank (BDL) continued to raise the exchange rate in the Sayrafa platform against the US dollar, to reach LBP 38,000 per dollar last week, from LBP 31,200. It justified the move by stressing the need to control the exchange rate of the dollar in the parallel market.
In a statement, BDL Governor Riad Salameh said that the depreciation of the Lebanese pound in the parallel market during the festive period of December was due to speculation and the smuggling of dollars outside the country.
He noted that this rise caused inflation in the markets, since prices in Lebanon are linked to the exchange rate of the dollar.
In recent days, the pound stood at LBP 47,000 to the dollar before quickly declining to reach around LBP 43,000.
International measures
Currency markets in Iraq have witnessed a disturbing fluctuating decline in the value of the local dinar, especially after the new measures imposed by the US Federal Bank on its Iraqi counterpart in terms of control conditions, which prevented transactions with banks and companies accused of money laundering to armed factions.
The ban on these banks caused a scarcity of hard currency supply in the market. Consequently, the exchange rate jumped to more than IQD 158,000 to the dollar, amid expectations that it would soon reach IQD 160,000.
Meanwhile, the Iranian rial continues to record an abnormal state of turmoil with severe fluctuations against the US dollar, especially in the last month of the year. The decline was prompted by the imposition of new sanctions on Tehran due to its suppression of popular protests that erupted more than three months ago.
The Iranian currency crisis led to the removal the governor of the central bank. Mohammad Reza Farzin was appointed as the new governor of the central bank, replacing Ali Salehabadi, who appeared before Parliament, and partly blamed anti-government protests for the currency’s drop to record levels.
Experts expect the Iranian currency to decline with the continuation of the unrest and the country’s increasing isolation, amid Western criticism of the crackdown launched by authorities against the protesters and the regime’s relations with Russia.
General and specific factors
Economic analyst Abdulaziz Al-Sanad said that the depreciation of the exchange value of some currencies was due to general and specific factors.
He noted that governments and financial authorities were not to blame for the global circumstances, but were fully responsible for the specific conditions in their countries.
The general factors include, according to Al-Sanad, the high rates of inflation globally, and the raising of interest rates by the US Federal Reserve.
He stressed the importance of governments taking precautionary and preventive measures to mitigate any negative impact on the value of the currency and its purchasing power.
Financial Analyst Hamad Al-Olayan said the depreciation of the currencies in the Arab countries and Türkiye against the dollar was due to the accumulation of debts and the depletion of reserves of foreign currencies, as well as the economic repercussions of the Covid-19 pandemic.
He added that high inflation, increasing interest rates and political tensions in Europe put further pressure on currencies that are not supported by industries or petroleum products.
