Proposed legislation seeks to grant Lebanon's Finance Ministry greater control over banknote printing

In a Tuesday cabinet session, a proposed expedited law aims to modify two significant clauses in the "Code of Money and Credit and the Establishment of the Central Bank." The first amendment involves the fifth article of the code related to banknote denominations, granting the Central Bank the authority to print other banknote denominations exceeding 100,000 without specifying these denominations in the text.

The proposed project also impacts Article 47 of the code, which currently grants the Bank of Lebanon the exclusive privilege to issue currency. However, the government's proposal adds a requirement for cabinet approval and a recommendation from the Finance Minister.

The crux of the issue, according to insiders, is that passing such a provision in Parliament may be impossible, even if the project is approved by the cabinet. By adding this clause to Article 47, the Central Bank would fall under the authority of the Finance Minister and be subject to the cabinet's decisions regarding the issuance of banknotes.

While the privilege of printing the Lebanese Lira remains with the Central Bank according to its estimates, implementing the decision would first be subject to the Finance Minister's discretion in raising the issue to the cabinet or keeping it in their office. Second, it would depend on the cabinet's authority and political inclination to either approve or obstruct the proposal. This raises questions about the Central Bank's independence and freedom to operate under a caretaker government or during a government deadlock.

This attempt to place the monetary authority under the executive branch's control in the matter of banknote issuance is unprecedented since the establishment of the Bank of Lebanon in 1963. If the goal is to establish controls between the surplus in the money supply and the ease of printing it, and between the continuing financial deterioration to curb inflation, a similar amendment cannot be measured against the current situation.

Neither the presence of Riad Salameh at the Central Bank nor the crisis that Lebanon is experiencing can serve as a basis for amending monetary policy.