Since the first of March, the value of the dollar in the Lebanese parallel market has stabilized at levels ranging between 80,000 and 100,000 pounds per dollar.
The Banque du Liban had announced since that time its intervention in the market, injecting hard currency into it, and opening the door to selling dollars to companies and individuals, through a banking platform that is being operated in bank branches.
The effect of the dollars that have been pumped in since that time was sufficient to impose a relative calm in the foreign exchange market.
However, this scene began to change on Thursday, March 9, when the dollar returned to recording consecutive and harsh daily increases, as soon as a statement was issued by the Association of Banks announcing its return to the strike and the closure of bank branches, starting from the following Tuesday.
Noting that the association had closed its branches during the month of February for three consecutive weeks, in protest against judicial decisions and investigations that targeted it, while it has now returned to its strike for the same reasons.
In all cases, after the strike entered its first day on Tuesday, March 14, the exchange rate of the dollar in the parallel market had exceeded the limits of 102 thousand pounds per dollar, which represented the lowest level of the value of the pound in its history.
Thus, the exchange rate of the dollar increased by 27.5%, during a period that did not exceed five days, between the day of announcing the return of the banking strike (March 9) and the day this strike began (March 14).
In fact, one does not need much analysis to understand the relationship between the intensification of pressure on the value of the lira in the parallel market, the start of the strike and the closure of bank branches in all Lebanese regions.
When announcing the trend to close bank branches, five days before the strike actually began, banks stopped accepting requests to buy dollars through a banking platform from their general customers, which braked the central bank’s intervention and stopped the process of pumping hard currency into the market.
Thus, the banks have suspended the basic tool that the Central Bank relied on to control the exchange rate in the foreign exchange market since the beginning of the month.
And with the cessation of dollar sales through an exchange platform, all demand for dollars went directly to the parallel market, which contributed to raising the exchange rate of the dollar there.
It is necessary to point out here that the Central Bank has spent about $300 million since the beginning of this month, through a banking platform, to intervene, pump hard currency, and control the exchange rate of the dollar.
As for the bank strike, which finally occurred, things returned to zero, with the dollar exchange rate escaping and rising to record levels, which means that everything the central bank has spent since the beginning of the month was wasted.
The most important problem lies in the fact that the bank strike, once the bank branches are closed, deprives the local market of fresh dollars, which used to come through bank transfers received from abroad. Bank customers have benefited over the past three years from excluding new transfers from the restrictions imposed on withdrawals in banks, but the bank strike is now preventing these dollars from being withdrawn from branches even if they are received.
It is important to note here that banks deliberately referred their customers to ATMs, to receive these dollars. However, bank customers remained restricted to withdrawal ceilings imposed by each bank on debit cards, which reduced the amount of dollars that were coming into the local market from bank transfers.
Bank customers also suffered from not refilling the machines with the required liquidity on a daily basis, after the demand for the liquidity of these machines accelerated. It was clear that rationing the operations of filling these machines was one of the forms of escalation that the banks practiced in their strike, at a time when they threatened an additional escalation that amounted to stopping the operation of these machines completely.
In all cases, the bank strike, and a reduction in the volume of dollars flowing through incoming transfers, led to a reduction in the money supply in hard currency in the parallel market, which automatically contributed to an increase in the dollar exchange rate.
It is expected that the overwhelming majority of bank customers will stop receiving these new transfers during the coming period, due to the difficulties they face when trying to withdraw them in cash, which in turn will increase the scarcity of dollars in the local market.
The most important thing in the matter is that the local market quickly caught up with the news of the banks’ strike, and expected the rise that it would cause in the dollar exchange rate.
This is what ignited – as soon as the strike was announced – a wave of speculation on the local currency, which doubled the successive rises in the dollar exchange rate.
As for the main problem here, it escapes the parallel market operations completely, outside the framework of any oversight or controls by the Central Bank, as a result of the expansion of the scope of the paper money economy since the beginning of the banking crisis.
It should be noted here that many banks, since the start of the strike, have exercised discretion in dealing with their customers. As some banking branches continued to provide cash withdrawal and cutting services to a very narrow circle of privileged customers, through prior appointments, in return for withholding these services from the general public and individuals and companies.
Therefore, the effects of the strike on bank customers varied, including those related to the rise in the exchange rate of the dollar, given that a small minority of customers continued to obtain dollars from an exchange platform, at the rate subsidized by the Central Bank.
As for the category that was greatly affected by the strike, it was a wide segment of bank customers who previously deposited money in pounds, and submitted requests to convert them into dollars at the exchange rate of an exchange platform, according to the established mechanism that requires depositing funds in pounds, and then waiting for many days before carrying out the cutting process.
After the strike was announced, most banks stopped carrying out exchange platform operations, which led to the freezing of all these funds in the accounts in Lebanese pounds.
At the present time, this category of bank clients is incurring great losses, as a result of the deterioration of the exchange rate of the lira, which automatically leads to a decrease in the value of their deposits in the local currency.
Very simply, Lebanese banks have returned to impose collective punishment on society and depositors, by completely closing all banking branches. And just like the previous strike, this strike comes as an attempt to twist the arm of the Lebanese judiciary, and prevent it from looking into the banking abuses that followed the collapse in late 2019, including those related to smuggling the money of privileged depositors.
The main problem until now is the complete absence of the Central Bank from this scene, and the failure of the bank’s governor, Riad Salameh, to take any step towards the rebellion that the Association of Banks is carrying out today.
The Monetary and Credit Law gives the Central Bank the authority to set the necessary regulations and decisions to ensure a good relationship between banks and depositors, and it also requires it to set rules for conducting work that banks must adhere to.
These powers, in particular, are what the Central Bank is supposed to use to protect depositors from the abuse that Lebanon’s banks are currently doing, and to protect the local currency from the repercussions of the bank closure that is happening today.
It is clear that the central bank’s failure to play this role during the previous banking strike encouraged the Association of Banks to repeat the strike experiment again. This may also encourage it to take additional escalatory steps in the future, such as stopping the filling of automatic teller machines, and completely depriving depositors of liquidity.
