Lebanon PM: Gov’t Not Consulted on Central Bank Policy

Date: 24 April 2020 - 23:12

News ID: ۷۷۷۹۸

BEIRUT (Dispatches) – Lebanon’s Prime Minister Hassan Diab says that the Banque du Liban, the country’s central bank, was going against government policy by allowing all depositors to withdraw money from foreign currency-denominated accounts in the rapidly depreciating local currency.
"We were not consulted on this matter,” Diab told Al Jazeera, following a parliament session. He added in remarks to reporters that he would have "strong words” about the issue after a cabinet session.
Lebanon’s central bank said on Tuesday that all depositors with foreign currency stuck in the Lebanese banking system due to harsh capital controls could withdraw their money in local currency, at "a market exchange rate” to be determined by banks.
Monetary policy in the economically ravaged nation has been very fluid of late, and the process surrounding major changes is opaque, which can and does sow confusion.
Lebanon has at least four exchange rates. There’s an official rate that hasn’t changed for 23 years and values the Lebanese pound at 1,500 pounds to $1. There’s also a legal but parallel market rate that values the Lebanese pound at 3,200 or 3,300 to $1. Then there’s a black market rate that’s even more punishing toward the Lebanese pound. And finally, a rate of 2,600 Lebanese pounds to $1 set by the central bank for small depositors who want to withdraw money from their foreign currency-denominated accounts under $3000.
The decision by the Banque du Liban or central bank is significant because prior to it, depositors were forced to withdraw U.S. dollars in Lebanese pounds at the official exchange rate, which effectively left half the value of their savings on the table.
The central bank’s new policy now gives all depositors a potential way to unlock their foreign currency deposits at a rate that more accurately reflects the true value of the Lebanese pound. However, that rate will be set by banks, and could still value the Lebanese pound more favorably than prevailing parallel market rates.
But many depositors could seize the opportunity to unlock savings they have not been able to withdraw. That leads to a real sting in the tail, say analysts, because when a wave of depositors suddenly converts foreign exchange savings into a rapidly depreciating local currency, it could feed speculative attacks on the Lebanese pound, resulting in hyperinflation.
Lebanon is grappling with its worst-ever financial crisis rooted in decades of corruption, mismanagement and faulty policies. Banks have few real dollars left to match over $110bn in dollar-denominated deposits, having lent the money to the Banque du Liban and successive governments, while a portion is also tied up in nonperforming loans to the private sector.