‘Like a drug deal’: Inside Lebanon’s black market currency trade
A crackdown on legal exchange shops has turbocharged illicit black market transactions in the crisis-ridden country.
Beirut, Lebanon – A four-wheel drive vehicle pulls up to the curb of a narrow side street in Beirut and collects a customer who climbs into the front passenger seat.
“How’s it going? Thanks for doing this on short notice,” says the customer to the driver.
Pleasantries exchanged, the two get down to business. The customer pulls out a small roll of United States $100 bills, counts them individually and hands them to the driver, who counts them again.
The numbers confirmed, the driver reaches into a door compartment, pulls out a bulging envelope and hands it to the passenger, who opens it. Inside are dozens of crisp blue and green Lebanese pound notes, 50,000 and 100,000 denominations, each bearing the name of Lebanon’s central bank.
The passenger counts the notes. By the time he’s finished, the driver has circled the block.
He drops the passenger off where he was picked up. “Let me know when you have more,” he says, and disappears up the street.
This transaction, which Al Jazeera observed recently, is a black-market currency exchange. Though illicit, such transactions have become commonplace in the crisis-torn nation, arranged between people who meet through popular messaging apps like WhatsApp and Telegram.
Some of those groups have swelled since late April to boast hundreds of members. Due to a government crackdown on legal, parallel exchanges, the black market is the only way most people in the country can currently swap rapidly devaluing Lebanese pounds for increasingly scarce US dollars.
No grey area
The black market is no grey area. Even small peer-to-peer exchanges of a few hundred US dollars are strictly forbidden.
“It’s illegal. Exchange activities can only be conducted by licenced offices,” a senior figure in Lebanon’s Internal Security Forces told Al Jazeera, speaking on condition of anonymity without authorisation to discuss the matter.
“People who do this are opening themselves up to prosecution.”
Those who are found guilty of violating Lebanon’s exchange laws could face up to three years in prison and a maximum fine of 10 times the yearly minimum wage- that is 81 million pounds or $20,250 at the current black market rate.
The risk is not lost on some people who engage in these illicit transactions, but who consider themselves as otherwise law-abiding.
Carl, a finance graduate in his late 20s who asked Al Jazeera to withhold his surname, chuckled as he recounted his last illegal exchange transaction. The deal, which took place outside a shuttered shop, was negotiated through a car window, and involved swapping currencies inside a rolled-up newspaper.
“It was like a drug deal,” he said.
Just six short months ago, US dollars and Lebanese pounds had been used interchangeably. The fixed official exchange rate of 1,500 Lebanese pounds to $1 had endured for 23 years, rewarding the people of Lebanon with stable purchasing power and a relatively higher standard of living for the region.
But eye-watering sovereign debt levels, corruption, economic mismanagement and a decade of deeply stunted growth fed by the war next door in Syria finally caught up with the Lebanese currency last summer.
The pound started tanking in value against the US dollar as remittances from abroad slowed dramatically, setting in motion a domino effect. Since Lebanon relies heavily on imports, the purchasing power of the pound effectively spiralled downward, taking the real value of salaries and savings down with it, as well as many businesses.
Tens of thousands of jobs have since evaporated. Talk of hunger is now widespread, and COVID-19 is heaping even more hardships on the Lebanese people.
Though the official exchange rate of 1,500 Lebanese pounds to $1 still stands, that peg has completely unravelled in the streets.
Licenced shops are either not working, or they are doing transactions under the table at the market price.
A crackdown backfires spectacularly
The pound started losing value in the streets last year – a spiral that gained momentum after informal capital controls imposed by banks made withdrawals of US dollars impossible and transfers of cash abroad extremely difficult.
But in late April, the decline accelerated dramatically after authorities resorted to forceful measures to arrest the pound’s slide on parallel markets.
The crackdown started when the Banque du Liban, Lebanon’s central bank, ordered parallel market exchange shops to set a maximum rate of 3,200 Lebanese pounds to $1 – a valuation divorced from market realities, given the dearth of dollars in the country.
Few exchange shops complied with the order.
Accused of currency manipulation, more than 50 parallel-market exchange dealers were arrested, including the head and deputy head of the syndicate of exchange dealers, and the director of monetary operations at the Banque du Liban.
The dealers hit back by announcing an open-ended strike. Most exchange shops remain shuttered, which has pushed currency exchange transactions further underground. In a spectacular backfire, the authorities have not only failed to arrest the pound’s decline, but they have turbocharged the black market that currently values the pound at roughly 4,000 to $1.
Al Jazeera reached out to a number of exchange shop owners for this story. They all declined to speak on the record, citing fears of the ongoing crackdown.
“Basically, the sector is being killed right now,” Omar Tamo, a Lebanese foreign exchange analyst, told Al Jazeera.
“Licenced shops are either not working, or they are doing transactions under the table at the market price, ignoring the legal price of 3,200,” he said.
“The currency has somewhat stabilised at 4,000 on the black market, but this is not sustainable. The root problem is that there simply aren’t enough dollars. The rate will get worse as long as that’s the case.”
And turning things around is no mean feat. The scale of Lebanon’s financial devastation is immense. The country’s banks are largely insolvent, having lent depositors’ money to the government, which elected to default on a $1.2bn Eurobond repayment in March.
The government of Prime Minister Hassan Diab is now trying to restructure the country’s debt payments as part of a financial rescue plan that also envisages securing more than $20bn in foreign aid. But Lebanon’s track record for implementing the necessary structural reforms for unlocking foreign aid is abysmal.
Faced with the possibility of seeing their savings wiped out, many Lebanese are looking to cut their losses any way they can. For those who dare to dabble in cryptocurrencies, converting savings to Bitcoin with a blistering transaction fee is one avenue. But the black market is the most popular choice.
“I just want to keep the value of my money,” said George, an auditor in his early 30s, who regularly trades on the black market. He asked Al Jazeera to withhold his surname.
“My family is converting some savings we have, because given our politicians, I don’t see a green light or improvement of any sort in the future,” he said. “We’re actually betting that things will get worse.”
Businesses that rely on imports, like car parts, food and luxury goods retailers, are also turning to the black market to source the hard currency they need to pay for what they then sell.
“I have thousands of euros of imports every month or two, for Mercedes, for all German brands,” a car repair-shop owner told Al Jazeera, speaking on condition of anonymity.
“We’re really suffering. If I don’t go to the black market, I close.”