The collapse of the Lebanese pound to a record level. Know the causes and repercussions

BEIRUT — With the Lebanese pound falling to a record low of 100,<> pounds per U.S. dollar, and as Lebanese banks resume their open-ended strike to protest lawsuits against them, the Lebanese economy faces a serious predicament.

Causes and wallpapers

In practice, experts assert that the free fall of the Lebanese pound is a natural consequence of the failure of the political and monetary authorities to find solutions and pass reforms. While Lebanon's central bank is unable to intervene with sustainable solutions to control the chaos of the parallel market, the latter controls the fate of the lira.

Recently, the parallel market has gained strong momentum and a kind of legitimacy, as Lebanon enters the phase of semi-total dollarization, after the authority allowed institutions and companies to price dollars according to the value of the dollar on the black market.

Ziad Abdel Samad, executive director of the Arab NGO Network for Development, said the lira's fall to 100,3 against the dollar was expected, because Lebanon has been witnessing a state of continuous collapse for three and a half years. Ironically, the political leadership watches from the spectators without announcing a contingency plan for the rescue.

Ziad compares this to how quickly the US administration acted when Silicon Valley Bank (SVB) collapsed, as the state there immediately placed the bankrupt bank under its management.

Meanwhile, journalist Azza Hajj Hassan confirms that the reasons that led to the collapse of the Lebanese pound continue economically and politically, and the problem extends to include all sectors, and the banking sector is the most influential.

Banking crisis

Lebanese banks are entering the second phase of their open-ended strike to protest court rulings against some of them ordering the recovery of deposits, and other prosecutions of banks and bankers.

The money market in Lebanon is witnessing great turmoil as a result of the strike, the failure to accelerate the restructuring of the banking sector, and finally the government's inability to refund depositors.

Economist Mounir Younis says – in his interview with Al Jazeera Net – that the dollar has become a commodity in its own right in Lebanon, and there is a huge demand for it against the scarcity in the official money market, and the crisis has worsened due to the balance of payments deficit of about $ 3.2 billion.

Shock number 100K

In the absence of official oversight, citizens record huge differences in the prices of goods between one store and another, especially since the dollar exchange rate changes around the clock, as some traders resort to collecting bills from citizens at prices that exceed the actual dollar value on the black market, which perpetuates an environment for manipulation and speculation that enhances the profits of traders, according to observers.

This deterioration of the lira compounds the living concerns of citizens, as the mere movement from one place to another has become a crisis in itself with the rise in fuel prices, as the price of a petrol tank reached 1.8 million liras, about half the salary of a state employee.

This comes at a time when most sectors of the state are in a state of paralysis, especially the education sector, as teachers are constantly on strike demanding better wages and paying them in US dollars.

Azza al-Haj says that exceeding the 100,<> figure is frightening, and there are many steps that have hindered solutions and pushed the lira to fall sharply, such as the retreat from reform items demanded by the International Monetary Fund, political intractability, presidential vacancy and the lack of a government with full powers to implement a reform plan.

Deficit of the "Central"

With the Lebanese Central Bank's foreign reserves dwindling to less than $10 billion – which before the crisis was about $35 billion – Azza al-Hajj confirms that the Central Bank does not have the ability to intervene effectively in the money market, since it began the policy of withdrawing dollars from the market and re-pumping them.

Economist Younes blames the central bank for the lira's collapse, adding that the lira's deterioration is exacerbated by total dependence on imports.

Scenarios

For his part, the executive director of the Arab NGO Network for Development warns of a serious impact of the collapse of the lira on food security in Lebanon, with the exacerbation of the phenomenon of poverty, which affects about 85% of the population, as many basic commodities, such as infant formula, are beyond the reach of all families.

Abdul Samad believes that if it weren't for the presence of members of most families who receive their salaries in dollars or send remittances from abroad, the social explosion would not have been delayed for so long. However, the rate of foreign transfers is no longer sufficient to meet the needs of families after the pricing of various services and goods in dollars, even housing and education allowances are in dollars.

Any social explosion in Lebanon will cause chaos and have serious security repercussions if the PA does not initiate urgent reforms.

For his part, Younes said that if Lebanon does not progress in its agreement with the IMF by implementing the reforms and legislation required of it, the collapse will continue, ruling out the ability of the current government to sign an agreement with the Fund.

Azza Hajj Hassan stressed that the collapse of the lira will not stop at these borders with the continuation of the same policies, and that long-term solutions are currently not available, but any positive action, such as electing a president, forming a new government, and then initiating reforms, may calm the financial situation temporarily.