Over the past few months, we have been watching the unofficial exchange rate of the Lebanese pound against the dollar climb from 1,507 all the way up to almost 10,000, due to the shortage of dollars in Lebanon. Not only have we been unable to access dollars, we also have been having restricted access to Lebanese pounds, our bank accounts illegally put under some kind of dictatorship. And the situation only seems to be worsening. So, what does the future hold ? Can we actually prevent a total collapse of our currency ?
EVALUATION OF THE CURRENT SITUATION
Truth be told, the Lebanese pound is losing its value, sinking the economy with it. The country went from a pegged exchange rate value of LBP 1,500/USD to an outstanding LBP 9,000/USD last week, now at over LBP 7,000/USD, as dollars fled the country through various routes. To top it all, banks have been discriminatorily limiting withdrawals for most people, while bank owners and politicians were outrageously able to transfer cash abroad. In order to alleviate pressure, the Central Bank printed local currency, but hurting the economy even more by doing so, causing more inflation and killing the purchasing power of the Lebanese people. Today more than ever in the history of Lebanon, people have lost confidence in their banking system.
CHRONICLE OF A DEATH FORETOLD
The devaluation happening today in Lebanon should be no surprise to anyone. Rumors about a devaluation had been alive for over 2 years, and despite Central Bank governor Riad Salameh’s and President Aoun’s statements, back in 2018, that the Lebanese pound was in good health and that the country was not on the road to bankruptcy, the reality was very different. To the point that several international financial instances warned Lebanon, and even published articles about the collapse of our economy. How much longer could our ailing system last before devaluing became inevitable ? Our Lebanese pound has been overvalued all this time, and we all knew that the day it would be left to float freely, that would be a catastrophe for the middle class and the poor, as none of the successive governments have had any type of fiscal discipline.
IS THERE A SOLUTION ?
Naively, some will attempt to convince us that for the situation to improve, we just have to get rid of the “ruling cartel”, replace the governor of the Central Bank, and inject foreign currency into the economy (which, by the way, would create more debt…). However, all of this is secondary, and won’t change anything, as long as we do not address the real issues. As long as we keep going with the endemic system of corruption and clientelism that Lebanon has been under for decades, no reform is possible. Lebanon’s economy is entirely tied to its political choices and affiliations. And now that political confidence is shaken, the system is collapsing.