Contents -- I. Introduction -- II. Brief Review of the Literature -- III. Exchange System in Syria -- A. Exchange System Developments -- B. Which Exchange Rate Should be Used to Measure the Real Effective Exchange Rate? -- C. Developments of the Free Market and Weighted Rates -- IV. The Role of Oil-Related Income -- A. The Concept of Oil-Related Income -- B. The Impact of Oil-Related Income on the Balance of Payments and the Budget -- V. Theoretical Determinants of the Equilibrium Real Exchange Rate and Estimation Results -- A. Theoretical Determinants of the Equilibrium Real Exchange Rate -- B. Estimation Results and Data Issues -- VI. Conclusions -- References -- Appendixes -- I. Exchange System Developments in Syria -- II. Detailed ECM Results -- Boxes -- 1. Oil-Related Income in Syria -- Figures -- 1. Developments of the Official and Free Market Exchange Rates, 1951-2005 -- 2. Nominal and Real Effective Exchange Rates, 1960-2005 -- 3. Share of Oil-Related Revenues in Total Foreign Exchange Earnings, and Balance of Payments Developments, 1960-2005 -- 4. Share of the Oil-Related Revenues in Total Foreign Exchange Earnings and Fiscal Developments, 1960-2005 -- 5. Real Efffective Exchange Rate and its Theoretical Determinants, 1960-2005 -- 6. Government Expenditure and Imports, 1961-2005 -- 7. REERF, Smoothed and Unsmoothed ERER, and Misalignment, 1960-2005 -- 8. External Sustainability Assessment -- Tables -- 1. Unit Root Tests -- 2. Multivariate Cointegration Test Results -- 3. Long-Term Coefficient From Vector Error Correction Model Estimates Using the Free Market Rate.