Beirut, January 31, 2010 Lebanon will adopt a new official currency of 15,000 pounds to the US dollar on February 1, 2009, Central Bank Governor Riyad Salameh said, showing a 90 percent reduction. years.
The previous move from 1,507 to 15,000 is still far from a parallel market, with the pound trading around $57,000 on Tuesday.
The change will apply to banks, Salameh said, reducing the equity of institutions at the center of the country’s 2019 financial implosion.
Analysts expect the shift to have little impact on the broader economy, which is increasingly affected by a weaker dollar and most trade as a parallel market volume.
In the year The pound has lost 97% of its value since breaking out of the 1,507 level in 2019.
Salameh told Reuters that commercial banks in the country “will see their equity share decrease in the pound, translating to $15,000 instead of $1,500.”
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To mitigate the impact of this shift, banks should be given five years to “rehabilitate the damage caused by the devaluation,” he said.
Salameh said the change to 15,000 was a step toward unifying several exchange rates under Lebanon’s draft agreement with the International Monetary Fund last year.
Several rates remain, the official rate, the central bank’s Sirafa exchange rate, currently at 38,000 pounds to the US dollar, and the parallel market rate.
‘Five Year Run’
The IMF has advocated for faster convergence and said Lebanese authorities must first address an estimated $70 billion in financial sector losses – largely the result of decades of overspending, corruption and mismanagement.
But the draft government plans offer a more long-term approach. Mike Azar, an analyst, said the five-year time frame for recovering the deficit was inconsistent with the IMF’s view that the deficit should be dealt with quickly.
In the absence of a comprehensive banking reform framework, banks will have to raise capital from shareholders to cover their losses or pass on their losses to depositors to withdraw from dollar accounts in local currency, he said.
“They can’t do it immediately, so the central bank is giving them a five-year runway to do it,” said Azar, a former economics professor at Johns Hopkins University.
The IMF deal is widely seen as the only way for Lebanon to begin to restore confidence in its financial system and recover from the collapse.
The exchange rate change is not expected to alleviate the most debilitating aspect of the crisis for ordinary Lebanese – the inability to freely access their dollar savings.
While capital controls have never been imposed in Lebanon, as of 2019 banks have severely limited their withdrawals in dollars and Lebanese pounds.
Reporting by Laila Bassam, Timur Azhari and Maya Gebeley; Writing by Timur Azhari; Editing by Arun Koyyur and Deepa Babington
Our Standards: The Thomson Reuters Trust Principles.
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