Syria's central bank has bought hundreds of millions of dollars from the domestic currency market it now tightly controls, helping to build up depleted reserves for an economy crippled by civil war, bankers and dealers say.
After jailing dozens of dealers in a black market crackdown, Damascus has pulled off the purchases without provoking a new collapse of the Syrian pound thanks partly to dollars pumped into rebel areas by President Bashar al Asssad's enemies.
Relative stability of the local currency has helped the authorities to prevent a further jump in inflation which could undermine support in areas it controls, and eased economic pressure on the government before it attends talks in Switzerland next week on a political solution to the war.
"In the last three months, the central bank has bought more dollars than it is selling," said a banker in a local private bank familiar with central bank thinking, who estimates between $5 million and $10 million are bought daily.
The central bank has amassed at least $600 million by selling local currency since the summer, two well-informed bankers said, and yet this has weakened the pound only slightly to 159 to the dollar from the 140.
Last summer the pound fell as low as 335 when the West threatened air strikes before backing off, compared with 47 before protests against Assad erupted in March 2011.
Bankers say the central bank has also become adept at making profits from its interventions, driving home the message to other players that it is themarket leader.
"It's the state that...creates the supply and controls prices too," a banker at a private Damascus lender said. The message from the central bank was: "'Don't play with this issue' ... They are proving effective," he added.
Nearly three years of conflict has caused billions of dollars' worth of damage, disrupted agriculture, devastated industry and wiped out foreign currency income from tourism and oil exports.
Economists estimated Syria's foreign reserves at $16-$18 billion before the crisis. The central bank has not published any recent figures, but its report for 2011 showed reserves had crashed by about a third by the end of that year.
In an irony of a war which has no single front line, bankers say the pound has been supported by $100 million to $200 million flowing into rebel areas in northern Syria. Some of this money, largely private and state funding for the rebels from the Gulf, finds its way through local trade into central bank vaults.
"The dollars which are changed to the pound are going back into the veins of the economy. They get into the economic cycle and in the last resort go to the central bank “said one Damascus-based Syrian banker who works in a foreign subsidiary.
People in rebel areas have returned to using the local currency despite initial expectations of its collapse and this has raised demand for the pound, bankers said.
"There was a danger that people would start using the dollar and forget about the pound, but now people have lost confidence the pound is going to collapse," one said.
Local firms closely associated with the authorities are now doing most of the licensed currency deals after the dozens of dealers blamed for wild speculation were jailed, giving Damascus even greater muscle, dealers say.
"Control over demand and supply has become complete," said one currency dealer who was briefly detained during the crackdown on traders suspected of hoarding dollars and who now operates covertly in the Abu Rumanah district of Damascus.
"There has been much more control and more oversight ... They reduced black market activity to a trickle," said another Syrian banker.
Lower demand for dollars
Lower financing needs for imports as Syria's international trade crumbles has also reduced demand for dollars.
Bankers and businessmen say authorities long ago ended an import financing scheme that once gave Syrian importers access to cheap dollars for buying industrial goods.
The authorities now offer a preferential dollar rate to only a handful of businessmen importing basic foodstuffs, and much of the commercial food imports that come to Syria are privately financed, businessmen say.
The unlocking of some frozen state funds in European banks accounts to allow for humanitarian food purchases will also reduce future dollar needs even further.
Currency stability has effectively become Syria's economic confidence index and an sign of the government's ability to mitigate the effects of war and Western financial sanctions, bankers said
"It facilitates trade and industrial activity. When the dollar is heading lower traders stop selling," said one businessman. "A stable exchange rate promotes economic activity.
Such stability has helped to rein in pressures that led to 50 percent price increases for basic consumer items last year. A main part of the authorities' economic policy to stave off wider discontent in areas it controls has been to try to cap prices of basic goods.
As the government prepares to send a delegation to the Swiss talks next week, it faces little pressure to grant concessions to divided rebel forces and a weak political opposition.
Bankers say the central bank's success in stabilising the pound does not appear to be under threat for the near future. Most predict a long and protracted war, saying most factors that once weighed on the currency are now already factored in.