Lebanon’s Collapsed Banking system
2023.01.31 11:53
Lebanon’s Collapsed Banking system
By Ray Johnson
Budrigannews.com – There was a lot of business in the money exchange shop in the Bekaa Valley of Lebanon. Customers flocked in carrying plastic bags containing the crashing local currency to purchase U.S. dollars as employees shouted out various rates and phones rang incessantly.
The proprietor of the storefront smiled and said, “Welcome to the Wall Street of Lebanon.” He had a machine gun on a rack behind him in case of a robbery.
In Lebanon, where the country’s once-honored financial sector has weakened as a result of a three-year economic collapse, cash is now king.
Some customers have even held up tellers at gunpoint to get their money from zombie banks, which have frozen depositors out of tens of billions of dollars in their accounts.
Nowadays, cash is used almost exclusively by people and businesses. According to banking records seen by Reuters, the amount of local currency in circulation increased by 12 percent between September 2019 and November 2022.
At the fluctuating parallel market rate, apologetic signs have been hung in most restaurants and coffee shops stating that dollars are accepted rather than credit cards.
The falling pound, which has lost 97% of its value since 2019, is monitored by Lebanese using mobile apps.
In order to complete transactions, fleets of mobile money changers swiftly travel to homes or offices. Money-counting machines are advertised on billboards along highways.
Since credit cards are no longer necessary, people take pictures of the dollar bills used to record large transactions and spread them out to show the serial numbers.
Even the Lebanese government, which is largely paralyzed, is moving toward the cash economy: The finance ministry has thought about asking traders to pay the new, higher customs tariffs in part in cash.
Crime has increased as there are more banknotes in circulation. Salvado’s CEO, Elie Anatian, stated that safe sales had steadily increased each year, with a 15% increase in 2022.
Other companies are failing. Due to the fact that banks no longer issue letters of credit for large shipments, Omar Chehimi imports smaller shipments for his home appliance store using cash he has on hand.
“Even Samsung (KS:), one of the companies we source from,” “LG – are only dealing with us in cash,” he said as he examined a torn $20 bill that a customer had used to purchase an electric heater.
Any recovery depends on the government fixing the $72 billion in losses in the financial system and getting the banking industry back on its feet. However, politicians and bankers with vested interests have resisted reforms that the International Monetary Fund has requested in an effort to improve the situation and gain access to international assistance.
The cash economy, according to Paul Abi Nasr, CEO of a textile company, made it “practically impossible” to impose taxes “because everything can simply stay outside of the banks.”
He added, “The government’s ability to be financially sound down the line hinges on this,” and that the cash economy also ran the risk of Lebanon being included on a list of nations failing to combat money laundering and terrorist financing.
Those concerns are shared by Western governments that oppose the role played by the Iran-backed, heavily armed Hezbollah organization. Foreign governments, according to a Western diplomat, were concerned that as cash became harder to track, illicit transactions would increase.
Last week, the U.S. Treasury imposed sanctions on Hassan Moukalled, a Lebanese money exchanger, and his company for allegedly having financial ties to Hezbollah. They said that Moukalled helped the group “transfer cash” and recruited money exchangers who were loyal to the group.
Byblos Bank’s chief economist, Nassib Ghobril, stated that “with dollars accounting for approximately 70-80% of operations,” the cash economy had become increasingly dollarized as a result of the pound’s continued decline.
Mohammad Chamseddine, an expert in economics at the Lebanese research organization Information International, stated that “the transformation to a cash economy means the collapse of the economy.”
