Depositors with dollar accounts in Lebanon will be paid cash in the local currency – the Lebanese pound – at a “market rate” within each bank’s withdrawal limits, the central bank said on Tuesday. The coronavirus-worsened hard currency crunch is piling pressure on the official exchange peg. The move widens the scope of banking operations based on a stipulated exchange rate announced by banks rather than the peg (1,507.5 Lebanese pounds to the dollar) that has been in place since 1997 – and that is still used to provide dollars for vital imports.
The Lebanese pound has lost around 50 percent of its value on a parallel market since October as Lebanon has sunk deeper into a financial crisis that has hiked prices, fuelled unrest, and locked depositors out of their United States dollar savings.
One of the world’s most heavily indebted states, Lebanon last month declared it could not pay its foreign currency debt. The government vowed to keep foreign currency reserves – which fell to “dangerous” levels – for critical imports.
The new banking policy does not apply to fresh funds transferred from abroad, which can still be withdrawn in US dollars, banking sources said.
The directive, effective for six months, said depositors who wished to do so could take out dollars in Lebanese pounds within the limits that each bank sets.
Before Lebanon went into coronavirus lockdown in March, banks had cut withdrawal limits to as little as $100 a week. Since then, they have stopped dispensing dollars to depositors altogether.
Nasser Saidi, a former economy minister and ex-vice central bank governor, said the move was an effective formal devaluation in excess of 50 percent and represented the “lirasation” of deposits.
The step would lead to runaway inflation and impoverishment, he added. “Time for accountability for failed monetary & exchange rate policies,” he wrote on Twitter.
Nassib Ghobril, chief economist at Byblos Bank, said it “shows the lack of dollar liquidity in the market and the fact that the government has yet to announce a credible plan emanating from the crisis of confidence and liquidity”.
A decision earlier this month marked the first such official transaction away from the peg, allowing depositors with $3,000 or less to cash out – in Lebanese pounds – at the “market rate” (parallel rate) instead of the official exchange rate.
Lebanese banks have so far announced they will pay out 2,600 pounds per dollar for those operations.
At that rate, savers lose close to 18 percent of the value of their money relative to a parallel market, where street dealers said scarce dollars traded at 3,150 Lebanese pounds on Tuesday.
The informal market has become a main source of cash for most people during the crisis, with the Lebanese pound slipping to 3,000 to the dollar last week for the first time.
A draft of a government crisis plan, floated this month and still under debate, saw the exchange rate weakening to 2,979 in 2024 from the official peg.
The peg of 1,507.5 Lebanese pounds to the dollar remains in place for bank transactions and critical imports of wheat, fuel and medicine.