A substantial influx of 400,000 expatriates during the holiday season is expected to bring in more dollars, which will be collected by the Banque du Liban and pumped into the exchange platform. This influx of dollars has already caused a rise in the average daily trading on the platform, from 23 million to between 85 and 95 million. As a result, the exchange rate of the dollar has dropped from 143,000 pounds to about 98,000 pounds, with the hope that this trend will continue into the summer season with over 1.5 million expatriates visiting Lebanon.
Despite the efforts of the Banque du Liban to stabilize the exchange rate through patchwork policies, such as raising the exchange rate overnight and inviting mass purchases of dollars with unlimited ceilings, the exchange rate of the lira continues to collapse. The Banque du Liban has been spending a large majority of its net reserves in foreign currencies, with the budget showing that it decreased from $16 billion in May 2021 to about $9 billion in late March 2023. These failed policies do not have the approval of all members of the Central Council of the Banque du Liban.
While the Central Bank successfully raised the exchange rate of the lira against the dollar from a record ceiling of 143,000 to 98,000 pounds, it is believed that the exchange rate will rise again as long as there are no positive political, financial, or economic indicators. The Banque du Liban does not use its reserves to intervene through exchange and instead uses them to finance basic state expenditures, with the process of financing the public sector taking place through the black market.
A liquidity of $17 billion in foreign currency is available in Lebanon, which serves as a foundation and a major barrier in the face of any insane rise in the exchange rate of the dollar. The Banque du Liban does not buy the dollar but sells it, with the exchange rate being a composite price determined by the bank. The exceptional measure added to the banking work allowed for the banque to intervene in the market through the platform to support public sector consumption. However, the Banque du Liban seeks to await the state to put an end to excessive spending and issue a balanced budget that reduces the burden of financing its expenses by printing currency, which increases inflationary pressures.
400,000 newcomers will pump a lot of dollars in a month
The average trading on an exchange platform rose in 3 weeks from a daily average of 23 million dollars to 39 million, and then to between 85 and 95 million, as is the case these days. This explains the drop in the dollar exchange rate from its peak at 143,000 pounds to 110,000, then to about 98,000, as yesterday. There is reliance on the arrival of 400,000 expatriates during the holiday period to pump more dollars from which the Banque du Liban can collect quantities to be pumped on an exchange platform, in the hope that this equation will reach the summer season as well, with which expatriates flock to Lebanon in numbers of more than 1.5 million expatriates.
Historical reading
However, historically, since the launch of the exchange platform in May 2021, the Banque du Liban has been trying hard, by wasting dollars, to keep pace with the black market exchange rate and make the exchange rate the only official rate in circulation in the market. However, his attempts two years ago are still failing, even though his net reserves in foreign currencies, according to what his budget shows, decreased from $16 billion in May 2021 to about $9 billion in late March 2023, and therefore $7 billion has been spent, a large part of which is to finance banking. And partly to finance some state expenditures, but without financial or economic feasibility in either case.
Patches didn’t work for me
These patchwork policies, sometimes by raising the exchange rate overnight by a unilateral decision by the ruler, and at other times by inviting the masses to buy dollars through the platform and with unlimited ceilings, did not succeed in stabilizing the exchange rate at any level it reached, and the lira is still collapsing continuously despite attempts The recent Central Bank, at the end of each month, succeeded in raising the exchange rate of the lira against the dollar from a record ceiling of 143 thousand to 98 thousand pounds, after pumping about $ 423 million during the last 5 working days of the platform. Although the exchange rate has become 88,000 pounds, the Central Bank decided to pay the salaries of the public sector at the exchange rate of 60,000 pounds this month, accumulating additional losses on it. Note that these two squandering and squandering of the remaining reserves of the Central Bank of foreign currencies or currency printing and increasing inflation, do not enjoy the approval of all members of the Central Council of the Banque du Liban, according to what was confirmed by relevant sources. Whereas, spending decisions on patchwork policies to fix the exchange rate and others are almost unilateral decisions taken by the Governor of the Central Bank, with reference to the need to be aware that circulars and relevant decisions do not bear the signatures of the Central Council of the Banque du Liban, with the pretext that the ruler has special power in this regard according to reading Especially for the monetary and credit law.
He can control for a while, too
In this context, a member of the Economic and Social Council, Adnan Rammal, attributed the rise in the exchange rate of the dollar above 140,000 pounds at the end of last month to the intervention of the Banque du Liban and banks to buy dollars offered in the market in addition to stored dollars, by raising the price and stimulating their sale. And he believed that the volume of dollars that the Central Bank had recently purchased authorized it to control the exchange rate for a longer period than previous times, at a time when the commercial market was witnessing a weak demand for dollars for import, as a result of declining consumption and raising customs duties, in addition to the decline in the purchasing power of public sector employees due to the decline in the value of Their salaries are in dollars. (Other sources indicated that the decline in imports is also related to what was stored before the customs dollar was raised).
Rammal also considered that reducing the difference between the exchange rate and the black market rate also limited speculation in the market, and thus decreased demand for the dollar.
The dollar will rise again
He stressed that the Banque du Liban is able, until today, to control the exchange rate, but it is a temporary period until the liquidity in foreign currencies that it created runs out, as the dollar exchange rate will rise again as long as there are no positive political, financial or economic indicators. Pointing out that the Central Bank does not use its reserves to intervene through exchange, and the evidence for this is that the shortage in dollars shown by the recent budget of the Banque du Liban between its assets and liabilities is negligible, between 50 and 60 million dollars, which indicates that it does not use its reserves to finance exchange and pay salaries and wages, but rather to finance Basic state expenditures, while the process of financing the public sector takes place through the black market.
Liquidity is $17 billion
For his part, banker Muhammad Fahili explained that the improvement of the exchange rate of the lira does not necessarily have a positive impact on the increasing rate of inflation, stressing that relying on the movement of the dollar as an indicator of improving economic conditions is a misconception.
He pointed out that Lebanon receives $7 billion annually in remittances from expatriates and about $3 billion from unofficial direct transfers, which means that remittances from expatriate Lebanon constitute 50 percent of the volume of the national product, in addition to $3 billion from exports and nearly $4 billion. To 6 billion dollars stored in homes, to be used when the dollar exchange rate rises. He explained that there is liquidity in foreign currency of about 17 billion dollars in Lebanon, which constitutes a basic foundation and a major barrier in the face of any insane rise in the exchange rate of the dollar, similar to the rise that it reached at 140,000 pounds, and it serves as economic controls for the exchange rate of the dollar against the pound.
Compound rate exchange
And he believed that any insane and abnormal rise in the exchange rate is the superiority of the confidence factor over economic factors, “However, the exchange rate has returned to its normal levels these days, fluctuating between 90 and 100 thousand pounds.”
Fahili pointed out that the exchange rate is not a price resulting from the volume of supply and demand, but rather it is a composite price determined by the Banque du Liban, on the basis of which it sells the dollar and does not buy it. Note that the Central Bank buys the dollar from the parallel market and relies on its reserves of foreign currencies from its investments abroad and others to interfere in the exchange. He said that when the public sector salaries and wages are paid, the Banque du Liban displays dollars in the market, and then buys them back to reconfigure a cash block equivalent to the value of salaries and wages in dollars.
needs of the public and private sectors
Fahili explained that the exceptional measure that was added to the banking work (Circular 161) allowed the Bank of Lebanon to intervene in the market through the platform with the aim of enabling public sector employees to engage in the economic cycle effectively, after the private sector was able to adapt to economic changes and dollarize its revenues and expenditures, while The public sector has suffered from economic exclusion. Therefore, exchange was used to support public sector consumption by paying employees’ salaries according to a subsidized dollar exchange rate, provided that those dollars are sold on the black market and benefit from the price difference. And he considered that the exceptional interventions of the Banque du Liban, through banking, are not to control the exchange rate of the dollar, but rather await the state to put an end to excessive spending and issue a balanced budget that reduces the burden of financing its expenses by printing the currency. And he added, “Since financing the state’s expenditures by printing the currency increases inflationary pressures, the Banque du Liban seeks to pay public sector salaries in dollars to reduce these pressures.” However, the current problem is that the subsidized exchange dollar is a “political” dollar, because the exchange rate differences between the black market and exchange, record a debt on the Lebanese treasury.
The price is Rs
In conclusion, the arrival of 400,000 expatriates during the holiday period is expected to further pump more dollars into the Lebanese economy. However, historical reading shows the Banque du Liban has been struggling to stabilize the exchange rate, despite wasting billions of dollars. While recent efforts have seen temporary success in raising the exchange rate of the lira against the dollar, relying on patchwork policies and spending decisions is not a sustainable solution. The fate of the exchange rate in the long run is uncertain, and it will ultimately depend on positive political, financial, or economic indicators. The Banque du Liban is currently utilizing exceptional measures to support public sector consumption, but a balanced budget that reduces the burden of financing expenses by printing currency is essential. Despite the challenges, the Lebanese economy has significant liquidity in foreign currency, which can serve as a major barrier against any insane rise in the exchange rate of the dollar.