On Thursday, less than 10 hours were enough for the value of the dollar in the parallel market to rise from around 80,000 LBP per dollar in the morning to reach 90,000 LBP per dollar in the afternoon.
Thus, the lira returned to levels before the statement was issued by the Banque Du Liban at the beginning of this month, that is, 10 days ago, in which it announced selling dollars at the Sayrafa exchange rate in all bank branches. So, the effect of the statement as a temporary calming pill quickly ended, and the dollars injected by the Central Bank of Lebanon in the past days went in vain.
It does not need much to understand what happened yesterday. In the first hours of the day, news began to leak from the Association of Banks, which confirmed that the association is heading towards resuming its strike starting from Tuesday. The decision in itself meant that the process of selling Sayrafa dollars in branches would stop during the next week, igniting speculation in the parallel market and putting more pressure on the exchange rate of the lira.
Then, the banks quickly began to stop accepting deposits in lira, which are dedicated to request the purchase of platform dollars, knowing that it would not be possible to transfer the money to dollars after closing in the upcoming days, which means stopping the procedures announced by the Central Bank of Lebanon since the beginning of March as of yesterday.
The process of selling dollars through bank branches in Lebanon works as follows: the client deposits money in their bank account in Lebanese Lira and signs a request to convert it to dollars at the Sayrafa rate. The actual conversion (or cutting process) is done later after obtaining the cash dollars from the Central Bank of Lebanon.
In the same conversion request document, the client releases the bank from any legal liability or demand that may arise if the Lebanese Liras are not converted to cash dollars later, in case the Central Bank of Lebanon does not approve the request. This means that the deposited Lebanese Liras may lose their value due to the depreciation of the exchange rate.
Practically, this is exactly what happened at the end of last year. Bank clients deposited huge amounts of liquidity in their accounts to buy dollars through the platform, without the cutting process being carried out later on, resulting in significant losses for these bank clients.
Several banking sources today indicate that the vast majority of funds deposited in Lebanese lira since the beginning of March, with the aim of buying dollars through the platform, are still in bank accounts until now, meaning that they have not been converted to dollars due to delays in the platform's transactions with the Central Bank.
For this specific reason, it is expected that most of the owners of these funds will suffer significant losses in the value of their funds, as soon as the banks close during the coming week and the platform's transactions inside bank branches stop. This will repeat the "Platform Trap" that occurred at the end of last December as the platform's clients suffered the losses.
However, the main problem is that repeating the "Platform Trap" will deal a new and painful blow to the credibility of the Central Bank's circulars, and to the impact of these circulars on the parallel market transactions. The recurrence of this trap in the future will discourage bank clients from interacting with these circulars, and will send a clear message to market speculators that the decisions of the Central Bank no longer have a real impact on the supply and demand balance in the market.
Following the announcement of the return to strikes by the Central Bank, after all the high cost of adjusting the exchange rate in the parallel market. During the last 10 days, it reached a total of around $300 million in operations through the Sayrafa platform.
The Central Bank expanded its acquisition of dollars at the platform's rate in order to implement the statement it had issued at the beginning of the month. As usual, the bank financed part of these operations from its reserves and purchased the remaining value directly from the parallel market. However, the cost of these "subsidized" dollars ultimately weighed on the Central Bank's budget.
Today, as it has become clear, the dollar returned to levels before the statement was issued, meaning that the dollars spent by the Central Bank to control the exchange rate have vanished into thin air. Since the statement's issuance, the banks had restrained the Central Bank's power, after halting requests to purchase dollars through the Sayrafa platform. This specifically led to the wild exchange rate fluctuations witnessed in the parallel market yesterday.
The most significant impact will be on the value of the lira in the parallel market starting from next week, as operations on the platform through bank branches cease completely, except for a few transactions that can be completed through ATMs. It is also expected that the cessation of fresh money transfers through the branches will exacerbate this compressing factor.
During the previous strike phase, the banks regulated the replenishment of ATMs, which reduced the possibility of withdrawing fresh dollars through these machines, further limiting the already-low withdrawal ceilings imposed on bank cards.
Lebanese banks have returned to the financial siege which started last month. As revealed by some information, the insiders within the association, which call for escalating financial pressure on the Lebanese state, won strongly. The first step is to end all legal prosecutions against banks, followed by holding the Parliament responsible for approving the Capital Control Law that secures a legislative cover against lawsuits.
This is exactly what prompts insiders of the internal association's discussions to weigh the banks going towards additional escalatory steps, beyond the limits of closing bank branches only. Specifically, this month, the association may reach the point of suspending ATM refilling, which would exacerbate the effects of the strike.
The most critical question is how all banks will respond to these escalatory measures, especially those that have been keen on "calming down" and avoiding excessive pressure tactics in recent months.