Syrians are losing confidence in the country's currency, and rushing to convert any savings into dollars. This is something else for the regime to worry about.
Syrian protests pile pressure on the value of the pound
The Syrian economy has been in ruins since mid-March. Tourism has come to a halt and foreign investments have stopped. The situation puts the Syrian currency, the pound, in a precarious position.
Adib Mayyaleh, the central bank governor, insists that the nation's monetary situation is sound, but the reality looks quite different. The imminent shortage of foreign exchange reserves threatens the value of the national currency.
The crisis has hit the economy hard. Since the outbreak of the uprising, Syria's tourism sector - which reportedly makes up 12 per cent of the economy - has almost completely stopped operations.
Another major earner, oil production, has also taken a hit. Syria produces 400,000 barrels of oil a day, and consumes 300,000, which in theory makes the country self-sustaining in this sector.
But there is a catch. Syria has the capacity to refine only 240,000 barrels a day. Until sanctions were enacted, Damascus shipped heavy crude oil to European countries for refining.
But now, with European sanctions, and because Iran and Russia are unable to refine this kind of crude, the Syrian domestic market has shortages. Export sales of oil have also declined.
Agriculture, once accounting for 18 per cent of Syria's annual GDP, has been in shambles for the fourth consecutive year, largely because of drought. Not coincidently, the hardest-hit areas, such as Deir El Zour and Hama, are the same ones that have been at the forefront of the uprising.
The protesters' frequent general strikes also add strain to the economy. Demonstrators have organised boycotts of businesses believed to be owned by regime pillars. These too disrupt the economy.
The uprising shows no sign of dwindling, and the longer people stay in the streets, the worse for the economy. Annual GDP - and state revenues - will certainly decline in 2011.
The unrest has also destroyed confidence among foreign investors. Many have already put projects on hold, freezing another revenue stream.
At the core of the problem undermining Syria's pound is the anxiety of its citizens. These are average people who make up the bricks and mortar of the economy and keep their savings in banks in Syrian pounds.
Yet these people now fear that the entity that stands behind their national legal tender, the Syrian government, might crumble. That would bring with it the collapse of the value of the pound.
In closed economies like Syria's, the government assigns its currency a fixed exchange rate against major world currencies. But when a government is at risk, people become unusually unwilling to hold the currency, and the black market soon comes to be a better measure of the actual worth of the paper money in question.
As of yesterday reports from Syria had it that the US dollar is worth 67 Syrian pounds on the black market, while the official rate is around 47.5.
Just as many Lebanese people did during the civil war, many Syrians have rushed to their banks in recent months and tried to exchange their pounds for foreign currencies, to preserve the worth of their savings.
This put exceptional strain on the foreign exchange reserves of Syria's central bank, which by May had seemingly run out of exchange reserves. That's when currency exchange prices on the black market began to depart substantially from the official rates.
Syrians are correctly expecting further devaluation of their national currency, and are accordingly racing to convert more pounds into dollars. The more pounds that are for sale, the more the currency's value decreases. The more dollars are in demand, conversely, the more their price increases.
In fact, Mr Mayyaleh admitted that the black market price is higher than the official one, but dismissed this market as a "small scale" operation.
In his defence of the monetary situation, however, Mr Mayyaleh offered what look like irrelevant arguments. He said that the bank had 600 billion Syrian pounds in reserve, and that deposits in Syrian banks had grown by 12 per cent to July 5. He denied reports that the government had defaulted on paying salaries.
Mr Mayyaleh's defence focuses on deposits in Syrian currency, but these do not alleviate fears that the Syrian national currency might be losing its value fast.
Syrian bank notes may soon not be worth the paper they are printed on. Syrians could see their savings vanish overnight, and salaries would become worthless. This is the problem the regime of President Bashar Al Assad is facing now.
Like anyone in his position, Mr Mayyaleh has had to show a steady hand, even if it meant that he had to bluff. The truth lies elsewhere.
Less than two weeks ago, Syria went to Kuwait asking for a loan of $105 million, which revealed a desperate need for foreign currency, perhaps not only to prevent hyperinflation but also to pay the growing bill for security forces and pro-regime thugs.
The Assad regime might not fall under pressure from mass rallies. But when it comes to the economy, it might find itself running on empty, and eventually might be forced to pull over.
Hussain Abdul-Hussain is a Washington-based analyst