Starting today Lebanon’s central bank, Banque du Liban (BDL), will begin to provide US dollars to commercial banks to support
Starting today Lebanon’s central bank, Banque du Liban (BDL), will begin to provide US dollars to commercial banks to support imports of food products that are becoming prohibitively expensive.
The COVID-19 pandemic has worsened the country’s ongoing economic crisis and crushed the exchange rate for US dollars against Lebanese pounds (LBP). An official pegged rate of 1,507.5 LBP to the USD is only available to imports of critical supplies, such as wheat, medicine and fuel. US dollars in the informal market, however, are being priced at more than 4,000 pounds. BDL has signalled its intention to provide dollars at a rate of 3,200 LBP per USD.
This BDL intervention is vital. A scarcity of dollars in circulation has resulted in high prices and food shortages, which Prime Minister Hassan Diab has warned could quickly turn into a full-blown food crisis. Increased dollar liquidity aims to stabilise the current dire situation, but it does not address the corruption, public graft, and criminal mismanagement that catalysed massive inflation in the first place.
If this intervention produces minimal results, BDL will likely face even closer scrutiny as the country looks to overhaul its banking sector to secure another IMF bailout. Initial plans for reforming the banking sector include “haircuts” on large deposits, repatriation of dividends and interest and a reduction in the total number of banks through closures and mergers.
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