BEIRUT — Following a meeting Tuesday with Prime Minister Najib Mikati and Finance Minister Youssef Khalil, Banque du Liban Gov. Riad Salameh, expanding on Circular 161, announced that the central bank will pump more US dollars into the currency market.
Here’s what we know:
• Expanding on Circular 161, Salameh announced that banks can now buy as many US dollars from the central bank as they want, in exchange for lira held in their accounts and their clients’ accounts, at the prevailing Sayrafa rate.
• In the original Circular 161 issued on Dec. 16. BDL said it would provide banks with cash US dollars instead of Lebanese lira at the Sayrafa rate for their monthly quota of lira liquidity. In turn, banks would sell these dollars to their clients at the Sayrafa rate.
• The circular stated that this exceptional measure will be in place until Dec. 31, 2021, but the lack of details and the release of the circular during the holidays prevented most banks from putting the proper disbursement mechanisms in place.
• On Dec. 23, the central bank proceeded to extend Circular 161’s deadline, by one month, to Jan. 31, to give more time for banks and clients to benefit from it. It remains to be seen if the Jan. 31 end date will be extended in light of the modifications to the circular announced by Salameh.
• The initial assumption was that banks would allow clients to withdraw US dollars up to their monthly withdrawal limit in lira. So, if a client could withdraw in cash LL5,000,000, then Circular 161 would apply to the LL5,000,000, which would be divided by the Sayrafa rate to yield the exact number of US dollars.
• However, according to banking sector sources, banks adopted different withdrawal mechanisms vis a vis their clients. Some opted to only serve public sector employees, while others imposed monthly US dollar withdrawal limits based on the balance of the deposit held with the bank.
• A banker at BLOM told L’Orient Today, “Today’s announcement is the third in a month. On Dec. 9 Circular 151’s rate was increased to LL8,000, then on Dec. 16, Circular 161 is released, and now the removal of quotas, yet the lira is still in a free fall, monetary policy is dead, it is ineffective in dealing with the crisis, and Riad Salameh has lost all credibility, if nothing is done on the fiscal side, then nothing can slow the lira’s depreciation, the central bank has only $12 billion left in reserves, it is behind the curve and has lost control of the market.”
• A banker at Bankmed told L’Orient Today, “we are becoming the new money exchangers.” The strategy to consolidate all foreign exchange transactions under the Sayrafa platform will only work if Salameh manages to get rid of all the unwilling players — money exchangers — and consolidate the trades with the banking sector, at least if not all the volume, then a big part of it.”
• On Jan. 4, the central bank issued warnings to 188 money changers for their failure to register the sale and purchase of US dollars on the Sayrafa platform. In the event, they fail to comply within a period of 40 days, they risk having their licenses written off.
• Mikati announced on Jan. 5 that the draft budget would be ready for the government to discuss within two days, and would be followed by a cabinet meeting invitation; however, so far, there has been complete silence on both counts and the deadlock since Oct. 12 between government members over the leadership of the Beirut port blast probe continues to thwart any prospect of the cabinet convening.
• At LL25,000, Sayrafa’s most recent rate remains 20 percent below the parallel market rate, offering clients the possibility to take advantage of Circular 161 by buying from banks at LL25,000 and selling in the parallel market, realizing an immediate profit of 20 percent.
• The lira briefly traded above LL33,000, touching at one time LL33,700, before settling back at LL31,700. Losses since the beginning of the year are already at 13 percent.