Exchange rate plan: BDL acting governor Wassim Mansouri's vision for exchange rate liberation

The Banque du Liban (BDL) acting Governor, Wassim Mansouri, declared a plan to gradually liberate the exchange rate, aiming to solely reflect the real market rate instead of the Sayrafa rate and black market rates.

The plan is pending approval from the government, raising concerns about the potential increase in the dollar's value in the market.

According to deputy governors, the exchange rate liberalization is not expected to affect ongoing monetary stability negatively. They argue that several factors support the timing of this move:

Firstly, with the arrival of expatriates and tourists during the summer, many of them carry dollars. Though official numbers on the quantity of these dollars are not available, experts estimate it to be between 500 million and 800 million dollars.

Secondly, another contributing factor to controlling the exchange rate is the decline in the Lebanese lira money supply, from around LBP 80 trillion earlier this year to about LBP 60 trillion currently. This decrease in money supply helps alleviate the demand for dollars in the market.

What is the reason behind the decline in money supply?

The modification of the $400 cash withdrawal limit, which eliminated the Lebanese lira part, made the Finance Ministry obligate merchants to pay 75 percent of fees and taxes in cash and now receive their salaries in dollars.

A third factor that deputy governors rely on is improved tax and fee collection to generate approximately LBP 20 trillion monthly, with over half of these amounts collected in cash.

Furthermore, authorities plan to cooperate with the Security Forces and the judiciary to combat market speculators.

However, experts suggest that the deputy governors' plan may only stabilize the exchange rate temporarily, given the absence of crucial reforms such as enhancing tax collection, combating smuggling, implementing capital control, and other necessary changes that have yet to be realized.