Lebanon’s Dollar Exchange Rate Stability After Governor’s Departure

There are many questions that the Lebanese are asking today about the fate of the dollar exchange rate after the end of the term of the Governor of the Banque du Liban, Riad Salameh. Is it still stable? Or will Salama’s departure during the month of July sound the “flying” whistle again, above 100,000 pounds?

According to reliable information, stability continues, at least until the end of summer. Salameh’s departure will not affect the exchange rate of the dollar in the market, especially after the measures taken by the Central Council of the Banque du Liban, which were able to establish the current stability, and we will mention them below.
Before that, more than one political and journalistic party quoted in private councils from the ruler that the exchange rate would reach the threshold of 100,000 pounds and stop. And information is reported frequently that the implementation of reforms may return the exchange rate to less than 50 thousand pounds, especially if these governmental reforms and those taken by the Central Council of the Banque du Liban coincide with the election of a president who is satisfactory to him on the Arab and international levels and who can form a homogeneous government that agrees with it.
Until then, it can be said that “there will be no rise in the exchange rate even after Salameh’s departure” in the foreseeable future, or at least until the end of the summer season.

According to the information, the Central Council of the Banque du Liban was not satisfied with the safety management mechanism for the sale and purchase of dollars through “money exchange”, because it was characterized by “chaos” and “excessiveness”, but the pressures exerted by a number of members of the Council, and then the many combinations they imposed On that mechanism, it was able to establish another “more organized” mechanism that became able to curb the “gluttony” in buying dollars “without a ceiling” that Salameh established throughout that period, which, along with other factors, caused the random increase in the exchange rate that we witnessed before the beginning of the month. March, down to about 140,000.

How was Sarafa organized?
What is happening today is summarized by the fact that the Central Bank was able to organize the mechanism of “banking” work, by balancing between:

1- The “Sarfa” platform: whose mission has become limited to withdrawing pounds from the market to curb the inflation of the monetary mass.
2- Money changers: By using their abilities to collect dollars from citizens in exchange for Lebanese pounds that the Banque du Liban alone pumps into the market, and they, in turn, hand them over to the Banque du Liban.

The council was thus able to balance between what it pumps in terms of liras through the money changers, and what it absorbs in dollars through “exchange”, but of course there is a cost that the Banque du Liban recognizes and bears and / or charges part of it, or perhaps all of it, to the Lebanese state.
The Banque du Liban confirms that this loss is “marginal” and worthless today, when compared to the stability that the “Central” was able to establish, and compared to the economic benefits and positives that the Lebanese citizen reaps, and that stability imposed, especially after imposing a convergence between the two “banking” prices. And the black market.
This loss is the difference between the current market price (94,500 LL) and the “banking” price (83,600 LL), that is, between 10 and 11 thousand pounds that the Central Bank bears and considers it inevitable in order to impose stability.
As for what helps the Banque du Liban to make this mechanism a success after the measures taken by the Central Council, they are two golden factors:

1- An abundance of dollars in the hands of citizens.

2- Their need for Lebanese pounds in order to run daily affairs.
This “abundance” in dollars is matched by a “need” for pounds, which prompts citizens to go to money changers to exchange dollars for pounds, then these dollars, in turn, are poured into the Banque du Liban through the money changers, but this time “quietly” and within a delicate balance closer to a “miracle.”

The sources of the Banque du Liban reveal to “ASAS” that the Banque du Liban’s annual need for dollars in order to run the affairs of the state (as it is the shadow government today) is $3 billion, which actually represents a deficit in the state budget. The measures taken by the government in terms of raising taxes and fees by calculating them according to the price of the “exchange” platform, improving the collection value, and so on, have contributed to reducing this deficit, which was around $7 billion before the taxes and fees were raised.

In other words, the Banque du Liban has become able, through this process, to secure (for itself and for the state) about $250 million per month from the hands of citizens, after it was about $580 million, without the exchange rate being negatively affected.

Is this balance sustainable?
The sources of the Banque du Liban confirm that we are still in the process of declining the price of the lira, but the speed of this decline has decreased. This stability is not sustainable. Rather, it is temporary. Several factors contributed to establishing it in a manner similar to a “miracle”. Among those factors is the decline in bank strikes, the decline in Judge Ghada Aoun and others’ attacks on the Central Bank, and the positive regional atmosphere, whose features began to appear in Syria and seep into Lebanon.

In the eyes of “official” sources, the Syrian-Arab “balance” is very important for prolonging this stability. Whenever the Syrian interior finds an additional economic outlet, this will reflect positively on the exchange rate in Lebanon. While the lack of these reasons will inevitably cause the return of “lack of confidence”, which will in turn push the exchange rate to rise again.

The “conditional” positive atmosphere does not stop there. Rather, the sources reveal that the volume of remaining deposits with banks does not exceed $90 billion out of approximately $160 billion. It is for depositors who chose to give something like an implicit “grace period”, especially after the margin of “small depositors” declined greatly due to the circulars issued by the Banque du Liban, such as circulars 158, 161, and today 165.

All of these factors coincided with the return of the private sector to adapting significantly to the crisis, despite the authority’s refusal to carry out its duties in approving the necessary laws such as “capital control”, “bank structuring” and “unifying the exchange rate”.

As for the future, the sources consider that the entry into force of the new Circular 165, which seeks to re-move the stagnant economic waters by re-creating “fresh” deposits in pounds and dollars, will be the first step to “preparing the ground” for the return of life to the banking sector. To be built on it over time in order to transform the “banking” platform into a “double platform” that enables citizens to buy and sell dollars through it in banks. Thus, the role of the speculators has completely and irrevocably declined, and then the role of money changers, which has ballooned since the beginning of the crisis, will recede to the limits of only a few crumbs.

According to the sources, the success of Circular 165, along with an additional positive political atmosphere, will be sufficient to inject additional doses of “confidence” that can all together impose stability in the exchange rate, but on the basic condition of showing the seriousness required by the authority, and proving its ability to abide by its responsibilities. While citizens and the media will be required to broadcast the missing positive vibes, in order to maintain the little level of confidence that is left to revive the national economy, and its mainstay is the banking sector.