Business & Economy

Historic collapse of the Lebanese pound

With the increase in the exchange rate of the US dollar on the parallel black market, it reached a new record high, exceeding 33,000 Lebanese pounds per dollar.
While the official dollar exchange rate is still fixed at 1510 Lebanese pounds, the dollar exchange rates vary according to the circulars of the Banque du Liban.
The collapse of the lira comes to a new historical level in light of a severe political crisis that disrupted the meeting of Prime Minister Najib Mikati’s government.
Economist and banker Nassib Ghobril says, “The crisis of confidence is one of the reasons for the existence of the parallel market, a crisis that began in late 2017 and early 2018 due to the reluctance to implement reforms and the loss of opportunities available to Lebanon. The confidence crisis extended and exploded in 2019 and led to a slowdown in the flow of capital, specifically deposits to Lebanon, and starting in September 2019, the sharp drop in the flow of capital began to Lebanon, and since that time there has been a lack of liquidity in the Lebanese economy, which led to the emergence of a parallel market for the dollar exchange rate in September 2019 for the first time in 27 years.

He also adds, “We are not the first country in which there is a sharp decline in the flow of capital, but the only country that has not taken any decision or measure to curb the deterioration and start restoring confidence and the flow of capital to Lebanon,” noting that “the second reason is the absence of a government for 13 years.” A month in light of multiple economic, financial, monetary and living crises, in addition to a health crisis represented by the outbreak of the Corona epidemic and the crime of the Beirut Port explosion.”
Gabriel said that “the exchange rate of the lira in the parallel market is an artificial exchange rate because it is not subject to supply and demand, and what moves the market or the price is the political and institutional stagnation and the inability of the executive authority to move forward with the reform issue or take any action to support confidence, and thus this matter created space for speculators and money changers.” And of course, the lack of liquidity in the Lebanese market in foreign currencies, which Allows the continuation of a parallel market.
It is also mentioned that the solution is not to take local measures to curb the deterioration of the exchange rate of the lira, but rather a mechanism should be established to unify the exchange rates of the dollar in the Lebanese market, a procedure that the International Monetary Fund expects. The economic recovery plan that the government is supposed to work on and submit to the International Monetary Fund, and the priorities of this plan are discussed and negotiated between the official Lebanese delegation and the IMF delegation, and they agree on a date for implementing the mechanism for unifying the dollar exchange rates in the Lebanese market.
And Gabriel indicates that “this mechanism should be the date of its implementation after the signing of the financing of the reform financing agreement between the two parties, and the signature of the IMF gives credibility to the reform program and removes ambiguity on the roadmap for economic advancement and exit from the crisis in Lebanon, and the IMF begins gradually to release the allocated funds to Lebanon.” Within the agreement, the process of implementing reforms begins according to the agreed priorities, the Banque du Liban begins to reconfigure its reserves in foreign currencies, the economic wheel begins to take a gradual turn, and the process of restoring confidence begins gradually.
He also considers that “the scenario he talked about is related to the ability of the Council of Ministers to meet and discuss the economic recovery plan and to distribute it to the components of the private sector to express their opinion. The Council of Ministers takes a final decision to approve this plan, and that it be the official plan that Lebanon will take to negotiations with the International Monetary Fund.” He stressed that if the obstacles in front of the government meeting are not removed, we will go to another scenario, which is the continuation of the uncertainty in which we are today and the continuation of the multiplicity of dollar exchange rates in the Lebanese market, and thus the continuation of speculators to control this market and the beneficiaries and illegal money changers.

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