BEIRUT — Banque du Liban on Monday decided, for a 13th month, to extend its main Circular No. 161 in an effort to mitigate dramatic fluctuations in the lira's parallel market value. The measure allows depositors to withdraw US dollars from their Lebanese lira accounts at the central bank's Syrafa exchange rate.
Now extended until the end of February, the main effect of this circular has been to limit Lebanese bank customers' access to their foreign currency accounts, contributing to an increased demand for dollars on the foreign exchange market and promoting the depreciation of the lira.
Circular No. 161 was adopted at the end of December 2021 and extended nearly every month since. It allows banks to provide dollars in cash to their customers by letting them convert Lebanese lira at BDL's Sayrafa platform exchange rate — that is, LL38,000 to the dollar according to the latest update last Friday night. This is also the regulatory basis that allows civil servants to withdraw their US dollar salaries directly from their banks.
The dollars exchanged under Circular No. 161 are provided directly to banks by BDL at the Sayrafa rate and are drawn from the country's foreign exchange reserves, which have dwindled since the beginning of the crisis in 2019. They currently stand at about $10 billion, an amount that does not take into account the five billion eurobonds on which the state defaulted in March 2020 and has still not been restructured. Nor does this figure account for more than $17 billion of gold, which BDL cannot freely dispose of to support the lira.
Between late December and Jan. 9, BDL temporarily lifted the conversion limits allowed under Circular No. 161, before reinstating them, leading depositors to block funds in lira at the bank without being able to fully convert them. In the meantime, the rate rose from LL46,000 to LL63,000 to the dollar in fewer than three weeks before stabilizing between LL57,000 and LL60,000 in recent days.
The reasons for the massive depreciation of the lira (more than 95 percent from the former official parity of LL1,507.5 to the dollar) are intrinsically linked to the chronic balance of payments deficits that have been at the root of the country's three-year economic crisis.