The exchange rate finally exceeded LL50,000 against the US dollar on the parallel market Thursday, after getting dangerously close to it in late December and last week. This is all while Banque Du Liban can’t intervene on the exchange rate for bank dollar withdrawals before a measure slated for next month.
In the meantime, the national currency broke its new record by decreasing over a symbolic threshold Thursday morning, according to data from the informal lirarate.org and Adde Dollar platforms.
Since the beginning of the crisis in 2019, the lira has lost 97 percent of its value compared to the former official rate of LL1,507.5 to the dollar that the country lived with for more than 20 years.
The rate has continued to rise at an irregular pace due to BDL’s attempts to curb it, which happened four times in 2022 (mid-January, end of May, mid-October and the end of December), with an effectiveness that has eroded over time. During this past year, the rate successively exceeded the LL30,000 and then the LL40,000 thresholds to the dollar.
Demand still strong
Because the market is so opaque, it is difficult to determine exactly what factors have led to the currency’s further decline.
What is certain, however, is that there is little evidence to suggest that the currency will take the opposite path. The demand for dollars is still strong in Lebanon, which imports most of its needs and exports little, and where a majority of bank deposits are still unilaterally blocked by banks in need of liquidity.
This is a situation that neither the state, which is poorly managed and has been defaulting on its eurobonds since 2020, nor BDL can remedy. The latter’s foreign exchange reserves are, according to its figures, currently below $10 billion, excluding the $5 billion in eurobonds it holds and the $17.6 billion in gold that it cannot freely use.
On the other hand, demand for local currency is abundant. The supply of money in circulation (bills and coins) has increased more than fourfold since the beginning of 2020 (LL67,200 billion as of mid-January, according to BDL). The role of speculators who try to make money by betting on fluctuations and transactions made by certain entities — BDL and banks, according to banking sources who spoke with L’Orient-Le Jour — also weighs on the rate change, but to an extent difficult to measure.
Conversions at LL15,000
The lira went over LL50,000 despite two interventions by BDL: one that just happened in January and one that was announced late last year.
On Dec. 27, BDL had decided to inject more dollars into the market by lifting the ceilings of one of its measures to manage banking restrictions. This was Circular No. 161, which allows bank customers to convert lira into dollars at BDL’s Sayrafa rate, which was raised to LL38,000 on the same day. It had been LL31,200 the previous day.
The lifting of the conversion limits caused a rush of customers to deposit hundreds of millions of lira in their banks and exchange them for dollars, which they could get back a few days later at the subsidized Sayrafa rate.
The fever was short-lived, however, as BDL tightened the tap in the second week of January, forcing some customers to recover all or part of the lira deposited with their banks — money that has returned and fed the supply in lira.
There is also what follows. BDL governor Riad Salameh announced in November, the central bank is expected in February to raise the exchange rate used by banks for converting dollars into lira and withdrawing from dollar accounts blocked by banking restrictions (bank dollars or lollars), according to the mechanisms authorized by Circular No. 151 and Circular No. 158.
The respective rates of LL8,000 and LL12,000 to the dollar for these two circulars are expected to increase to LL15,000, which is the rate used by the authorities to calculate the state budget for 2022, and which is supposed to have become the official rate.
The increase in these rates may also potentially increase the supply in lira and thus further push up the market exchange rate, unless BDL or the authorities take effective countermeasures. This is despite the fact that Circular No. 158 also allows depositors to withdraw small amounts in real dollars each month.
Finally, on the informal market for bank checks that individuals and businesses exchange for cash at a discount to the face value of the check, a check in lollars could be purchased for about 14 to 15 percent of its face value, while a check in bira (short for bank lira) could be sold at an 88 percent discount. These rates increased slightly from usual levels. A financial source involved in this trade, who requested anonymity, attributed these rates to higher demand by bank customers looking to repay their loans.
This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.