Lebanese currency has halved on one-time basis
2023.02.01 12:29
Lebanese currency has halved on one-time basis
By Ray Johnson
Budrigannews.com – On Wednesday, Lebanon devalued its official exchange rate for the first time in 25 years, weakening it by 90% while maintaining a local currency that is still significantly below its market value.
After decades of corruption, wasteful spending, and poor management by the ruling elite in Lebanon, the crisis has grown despite rising poverty, and the pound has fallen since a financial meltdown in 2019.
The official rate of 15,000 pounds per dollar was confirmed by the central bank, eliminating the 1,507.5 pounds rate at which the currency was pegged for decades prior to the collapse.
According to market participants, the pound was traded on the parallel market, where the majority of transactions take place, on Wednesday for approximately 60,000 dollars.
Officials in Lebanon have said that the new official exchange rate is a first step toward bringing together the various rates that have emerged since the crisis.
The International Monetary Fund wants Lebanon to take a number of steps in order to secure a $3 billion aid package that would help it recover from the crisis.
Despite the gravity of a crisis that marked Lebanon’s most destabilizing phase since the civil war between 1975 and 1990, the IMF stated last year that progress in implementing reforms remained “very slow.” The majority of reforms have not yet been carried out.
Limited local currency withdrawals from U.S. dollar accounts, from which depositors have largely been unable to withdraw hard currency since 2019, will be subject to the new rate.
Additionally, it is expected to be applied to import-dependent customs duties.
Riad Salameh, head of the central bank, told Reuters on Tuesday that the change would also lower banks’ equity.
Depositors have been forced to withdraw their hard currency savings at a heavy loss or have been frozen out of their hard currency savings in the absence of reforms to plug a $70 billion hole in the financial system.
Based on Wednesday’s market rate, withdrawals in Lebanese pounds from hard currency accounts will still incur a 75% de facto haircut at the new official rate.
According to economist Toufic Gaspard, who has served as an advisor to the IMF and the Lebanese finance minister, the move was not a significant change in the larger picture.
He stated:
“For the past three and a half years, nothing has been done following the largest banking collapse in modern history. “The authorities have not taken a single significant action in the political, monetary, or financial domains.”
“They are promising the helpless depositors that you will receive a little bit more, but this will be eaten up by taxes and inflation.”
The move was described as “continuation of (a) failed exchange rate pegging/fixing policy that has generated the biggest financial crisis in history” by Nasser Saidi, a former economy minister and vice governor of the central bank.
