Biblical-Era Fixtures : Changers of Money Thrive Still in Mideast

When a government ministry in bankrupt Syria needs to buy essential commodities in the West these days, officials bypass the government’s cash-short Central Bank and send suitcases of cash to a walk-up office in the old quarter of Damascus. The next day, U.S. dollars are discreetly transferred abroad.

Every month, a Palestinian engineer working in Kuwait sends part of his earnings home to his family in Nablus, on the Israeli-occupied West Bank of the Jordan River. Although Kuwait and Israel have had no telephone or telex links, let alone correspondent banks, since the 1967 Six-Day War, the money is paid out within 48 hours.

In both these instances, the transactions are made possible by money-changers, financial middlemen who have been a fixture in the Middle East since well before Jesus, according to the Gospel of St. Mark, turned them out of the temple.

Arab World Fixture

Elsewhere, money-changers have largely disappeared, except as an aid to tourists, but they abound in the Arab world, keeping ahead of the far more powerful banks by tiptoeing along the edge of legality.

The lack of regulation, which makes money-changers so popular, also means considerable risk. In Jordan, at least four big money-changers have gone bankrupt since early May, with unprotected losses in the millions of dollars, a scandal that has had repercussions throughout the Arab world.

According to bankers and economists, money-changers continue to thrive in the region because of a multiplicity of currencies and, most important, a clear preference among Arabs for cash transactions over credit cards and checks.

“Cash is anonymous; nothing else is,” said Ahmed Chalaby, general manager of the Petra Bank in Jordan. “Big banks have trouble competing with money-changers, who have lower overheads, greater flexibility and are more prepared to take risks.”

Crime-Free Society

Another factor contributing to the money-changers’ continued prosperity in the Middle East: The Arab world is still a relatively honest, crime-free society.

Money-changers frequently hold hundreds of thousands of dollars in cash; often it is lying around in heaps on top of counters or stuffed in wads in desk drawers. Despite such temptations, the Middle East is so safe that most money-changers eschew the barred windows, armed guards and closed circuit television cameras that are a fixture in Western banks.

Even in West Beirut, where gunmen wander freely and traditional values have been offset by jungle law, money-changers in the once-fashionable Hamra shopping district continue to trade huge amounts of cash in storefront operations.

Money-changing today is pretty much what it was in biblical days, with a technical improvement or two. A typical operation consists of little more than a desk and a telephone. The bigger money-changing “houses,” however, use computers and trade with exchange markets as far away as Hong Kong and New York.

Flick of Thumb

Arab money-changers even have a peculiar grip for counting huge wads of money: The cash is curved in an arc in both hands and flicked through by moving a thumb, much as a blackjack dealer passes out cards in Las Vegas. Rich money-changers in the Persian Gulf states use electronic machines to count currency.

The accounting practices of most money-changers would be regarded with horror by established banks in the West. Since most are family businesses with small payrolls, the “balance sheet” exists in the owner’s head or on on scraps of paper.

A money-changer in Amman recently showed a journalist the record of a transaction. A cab driver from Damascus had carried 650,000 Saudi riyals, roughly $173,000, in his pockets with a list of disbursements to New York and London banks written on a restaurant napkin. The genuineness of the transaction had been certified with a rubber stamp that bore the money-changer’s personal mark.

Transfer Slips

Money flows to the Israeli-occupied territories from the Persian Gulf states through Amman, where transfers are scribbled on slips of paper and carried through Israeli checkpoints by couriers. Even Israelis flock to the Arab money-changers in East Jersualem, where dollars are frequently worth 10% more than the official exchange rate for the Israeli shekel.

In the Arab world, millions of dollars are transported every day, uninsured, by money-changers who stuff wads of cash into trash bags or nylon suitcases and put them aboard flights with a trusted courier, typically a cousin or a brother-in-law.

In the close-knit world of money-changers, where everyone seems to know everyone else, one Lebanese dealer is still spoken of derisively for having lost a $150,000 shipment at the height of the Lebanese civil war. Other changers were so incensed that they refused to have any further dealings with the hapless Lebanese, who was virtually driven out of business.

Customers prefer the money-changers to banks because the small size of the operation generally means they get better and faster service and a better exchange rate, usually 1% more than the wholesale market rate.

Little Paper Work

In most Arab countries, money-changing operations are completely unregulated, guaranteeing secrecy and eliminating the endless paper work associated with most banks’ foreign exchange operations.

In Jordan, for example, a bank cannot transfer more than 5,000 Jordanian dinars, roughly $15,000, out of the country without Central Bank permission. Money-changers move unlimited amounts.

“Most governments leave the money-exchange business alone because people feel comfortable with it and therefore are willing to move their money in as well as out,” a Western banker here said.

In Syria, where, in theory, foreign exchange operations are closely controlled by the government, there is a huge difference between the official exchange rate and the one used by the money-changers. The country is so short of Western currencies that even the government changes money with the money-changers.

‘Government Intervention’

The business is not without risks, however. When the exchange rate for the beleaguered Syrian pound began to plummet on the free market in January, the government arrested the 80 largest money-changers. After keeping them in jail, some for as long as two months, the government released them after the pound had stabilized.

“That’s what I call government intervention in the money market,” a diplomat in Damascus quipped.

The recent financial crisis among Jordan’s money-changers has led a number of economists to predict that the changers here will be replaced by banks in the not-too-distant future.

The crisis began May 8, when Saliba Shukru Rizk, one of the largest money-changers in the Arab world, was found outside his home with a fatal gunshot wound in the temple and a note pinned to his trousers. Although suicide is suspected, the police have not ruled out murder.

It soon became apparent that Rizk’s firm, as well as a number of other money-changing companies, had illegally operated as banks, taking deposits from the public and paying interest rates as high as 23% annually.

Gold Speculation

In Rizk’s case, the deposits represented an unsuccessful effort to cover his huge losses from speculating in gold. Rizk’s firm went bankrupt, with claims totaling more than $50 million from customers and investors.

When news spread of Rizk’s troubles, there was a run on other money-changers who had taken deposits, a practice that is illegal for money-changers. The National Exchange Co., one of the largest firms doing business between the Persian Gulf states and the West Bank, was closed because of “illiquidity”--lack of funds.

Many of the money-changing houses had turned to banking transactions because the mainstay of their business, the exchanging of currencies, had fallen off dramatically with the end of the economic boom in the Gulf region.

Remittances to Jordan declined from 475 million dinars in 1984, roughly $1.42 billion, to 403.5 million dinars last year, $1.2 billion.

“The tide went out, and a lot of these guys couldn’t cover up their mistakes,” a Western economist said.

Facilities Withdrawal

Another blow came when First Chicago International bank reportedly lost more than $23 million in a transaction involving an Amman money-changer. Although the details are in dispute, major Western banks have withdrawn credit facilities from a number of money-changers, creating a cash crunch.

Shortly after Rizk’s death, Jordan’s Central Bank licensed commercial banks to operate as money-changers. Banks--among them Chalaby’s Petra Bank--have quickly swooped in and swallowed a large share of the market. They offer the advantages of fiscal soundness with the freedom of a money-changer.

Some money-changers are diversifying, offering customers the capability of trading in foreign exchange, managing investment portfolios or simply opening unrelated businesses.

An Arab economist predicts that many money-changers will be forced by market conditions to merge with commercial banks or expand into other financial services.

“Even the Arab world can’t resist the trend toward credit cards and checks too much longer,” a major Jordanian money-changer said. “I predict that we’ll all be out of the money-changing business in 10 years, except for the little guys with the desks who change cash on the streets.”