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A tale of two banking crises: Lebanon vs. the US
News Bulletin Reports
2023-03-19 | 12:09
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A tale of two banking crises: Lebanon vs. the US
The collapse of Silicon Valley Bank (SVB) and Signature Bank, as a result of a liquidity crisis, led to a crisis of confidence in the banking sector.
However, the US Central Bank has intervened and printed local currency to cover the shortage of dollars in the economy and temporarily provide liquidity to some banks to avoid losses for depositors.
"We, as a central bank, we have the ability to create money digitally and we do that by buying treasury bills or bonds or other government guaranteed securities and that actually increases the money supply. We also print actual currency, and we distribute that through the federal reserve banks," a US Central Bank official explained.
But, in Lebanon, the situation is far worse, with a loss of over $70 billion in the financial sector and no dollars to cover it because they cannot print dollars and they failed to implement reforms that would help bring dollars into the country, the sole currency available is the Lebanese Lira.
Moreover, as long as this situation persists, Lebanese banks will not be able to return deposits in dollars, only in Lira.
Thus, the more Lebanese pounds printed, the more their value declines, resulting in further loss of value for remaining deposits and exacerbating inflation and rising prices.
The loss of confidence in the Lebanese banking sector has severely affected the country's economy and caused widespread financial distress for its citizens. While the US has been able to intervene and stabilize its financial system, Lebanon's problems continue to mount, highlighting the urgent need for economic and financial reforms to address the underlying issues causing the crisis.
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