In the past hours, the Lebanese pound has crossed the barrier of 50,000 pounds per US dollar on the black market, which is a new level in the long suffering journey that the Lebanese currency has been experiencing since the end of 2019, at a time when the measure taken by the Lebanese Central Bank for about three years has not been able to. Weeks of curbing the downward path of the currency only for a few days.
A few days before the end of 2022, the Central Bank of Lebanon surprised the financial markets, with a decision allowing individuals and institutions to buy dollars from banks through a “banking” platform without limits, at a price of 38 thousand pounds per dollar, and this initiative succeeded in reducing the exchange rate on the black market from About 48 thousand pounds per dollar to about 42 thousand pounds.
However, it was only a few days until the exchange rate on the black market resumed its rise, with the Central Bank of Lebanon partially retracting its decision, and announcing that purchasing dollars through the “banking” platform would be intended only for individuals with specific ceilings and not for companies, which observers attributed to the Central Bank’s inability to Withstanding the huge demand for dollars from the markets.
Official data showed that the volume of transactions conducted through an exchange platform, during the first 11 days of the year 2023, exceeded $1.1 billion, with about 80 percent of these transactions concentrated in the first three days of the year, that is, when the field was still open to companies to take advantage of the platform.
It is expected that this large number of hard currency with which the Banque du Liban entered the market, trying to curb the collapse of the lira, will be reflected in a decline in the value of its foreign currency reserves, which reached low levels of $10.15 billion at the end of 2022.
“Exchange” is one of the problems
And the Chairman of the Board of Directors of the Bank for Investment and Finance, Jean Riachy, believes in an interview with the “Sky News Arabia” website, that the exchange platform is not a real platform for determining the exchange rate of the dollar against the Lebanese pound, and it does not have the ability and cannot in any way curb the collapse in the exchange rate, pointing out That the price you adopt is an artificial price and does not reflect the reality of the situation.
According to Riachy, the Banque du Liban suggests that an exchange platform embodies a kind of solution, but in reality it is not. Rather, it has turned into a platform that provides dollars at a subsidized rate to some parties, so that these dollars will be used later in speculative operations on the lira on the black market, calling for the abolition of these The platform that has turned into a burden, not a solution.
Riachi reveals that the Banque du Liban finances part of the banking operations, by buying dollars from the black market at a high price, to return and sell these dollars through an exchange platform at a lower price, indicating that the central bank covers the losses it incurs, as a result of the large difference in the price between the black market And an exchange platform, through the process of printing the currency, which means in the end that it creates a monetary mass in Lebanese pounds greater than that which it absorbed from the market.
The basis for the collapse of the lira
Riachi believes that the main reason that deepens the collapse of the Lebanese pound is due to the currency printing policy pursued by the Banque du Liban, with the aim of financing government spending, and returning part of people’s deposits on a monthly basis, indicating that there is a big problem that lies in deposits registered in banks, where banks’ budgets appear. The Lebanese that there are about 95 billion dollars in deposits for customers.
It is assumed that 90 percent of these funds are deposited in the Banque du Liban, but the situation on the ground shows that the Banque du Liban does not possess this volume of funds, which means that the dollar deposits of depositors do not have funds in exchange for them, and therefore the Banque du Liban resorts to dissolving these deposits. Through the policy of printing pounds, which creates inflation and deepens the collapse of the Lebanese pound.
Solve the problem
Riachy stressed that the door to the solution to the problem of the collapse of the Lebanese currency consists of several elements, the most prominent of which is approving a budget for the state that does not depend on the policy of printing the currency to finance spending, returning deposits of depositors, in addition to creating a balance in the financial sector, through restructuring banks and the state bearing part of the responsibility. By preparing a plan that guarantees the return of the rights of depositors, without putting pressure on the lira.
The volume of the monetary block in pounds
According to official data, the volume of the monetary block, which includes ready liquidity in Lebanese pounds, reached 97.08 trillion Lebanese pounds by the end of the year 2022, which proves that the currency printing policy by the Banque du Liban has flooded the market with large quantities of Lebanese pounds, which are now used in speculative operations on the currency.
Lebanon catches up with the Venezuelan model
For his part, Dr. Mowaffaq al-Yafi, a doctor in political economy, said in an interview with “Sky News Arabia Economy” that the monetary mass in the Lebanese currency in the market exceeds the size that a person can expect, and therefore the collapse that occurred is a natural result of the currency printing policy and cannot be expected. Except for an additional collapse in the exchange rate, indicating that Lebanon is steadily following the Venezuelan model of currency collapse.
Unlimited free fall
Al-Yafi believes that the exchange rate of the Lebanese pound against the US dollar has entered a stage of free fall that has no bottom. In 2023, it may reach 70 thousand or even exceed the level of 100 thousand pounds per dollar, pointing out that the collapse besieges the Lebanese pound, as this coincides with the melting of the country’s reserves in hard currency.
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