Lebanon orders money transfer services paid out in local currency

Lebanon’s deep financial crisis and hard currency shortage have prompted banks to impose tight controls.

Lebanon Money Pound
A customer wearing a face mask and gloves is served at a counter of a currency exchange store during a countrywide lockdown to combat the spread of coronavirus disease (COVID-19) in Beirut, Lebanon [File: Mohamed Azakir/Reuters]

Lebanon’s central bank said on Thursday that money transfer services operating outside commercial banks must issue cash in local currency at a “market rate”, according to a central bank circular.

The circular said hard currency received from abroad must also be sold on to a new central bank foreign exchange (FX) unit being set up to trade foreign currency.

The measure comes amid efforts to rein in a parallel FX market that has become the primary source of hard currency, and where the Lebanese pound has lost about half of its value since October after capital inflows dried up and protests erupted.

The circular did not specify the market rate to which that money transfer services should adhere.

Lebanon’s deep financial crisis and hard currency shortage have prompted banks to impose tight controls on withdrawals and transfers, angering Lebanese citizens who have been severed from much of their savings.

Much of Lebanon’s sprawling diaspora relies on money transfer services such as OMT and Western Union to send remittances from abroad, bypassing cash-strapped commercial banks. 

Nassib Ghobril, chief economist at Byblos Bank, said the new measure could bring some of that hard currency back to the formal banking system. 

“There has been hesitation by expatriates to send remittances through banks, and so funds were shifted to money transfer operations,” said Ghobril.

Commercial banks have allowed Lebanese people to withdraw cash if it is freshly deposited from abroad, but many Lebanese remain wary of using the formal banking system amid the tightening restrictions.

The central bank said earlier this month that the new FX unit would centralise trading for approved money changers and that it would help set a market rate for the sale of United States dollars on the parallel market, though this has yet to come into effect.

The Lebanese pound this week began trading on the parallel market for more than 3,000 Lebanese pounds to the dollar for the first time, versus an official pegged rate of 1,507.5 pounds.

Source: Reuters