Acting Governor of the Central Bank of Lebanon, Walid Mansouri, declared to a delegation of Lebanese journalists who visited him last week that he will not stand "against the depositor to take his deposit at a rate of 90,000 Lebanese pounds if this exchange rate is approved in the 2024 budget."
Therefore, the approval of the 2024 budget at the specified exchange rate on the platform will allow the central bank and the banking sector to transact between them according to this rate, automatically canceling Circular 151, which sets the exchange rate for cash withdrawals from banks at 15,000 Lebanese pounds and replaces it with the officially approved rate.
Banks must prepare to adjust and liberalize the exchange rate upon the approval of the budget, considering that their financial situation and revenue will be negatively affected... significantly! They will be responsible for securing the required cash liquidity in Lebanese pounds to repay deposits at the approved exchange rate.
On the other hand, the Central Bank of Lebanon continues its efforts to maintain monetary stability by raising the exchange rate for cash withdrawals from banks to 90,000 pounds, relying first on state revenues that will be collected at the same exchange rate. This will contribute to withdrawing part of the cash liquidity in pounds that will be injected into the market. The central bank will cover the surplus in liquidity between what it injects and what the state collects by reducing the monthly limit for bank withdrawals currently set at 1,600 dollars, and through the Bloomberg platform, which is planned to be launched.
It will rely on compelling anyone who wants to open banking credits for imports to secure the value of those credits in Lebanese pounds in cash. The banks will buy the dollars for this through the Bloomberg platform. Thus, the central bank will also contribute to withdrawing the remaining part of the cash surplus in pounds from the market, maintaining the necessary cash mass to preserve the current monetary stability. In addition to injecting dollars into the market through importers who will turn to exchange offices in the market to secure the required pounds for opening credits, as private sector trade transactions have become almost entirely modular, and the volume of trading in pounds in the market has decreased recently.
The capital control law project, which stipulates in one of its articles to “lollarize” local trade transactions, also contributes to absorbing cash liquidity in pounds from the market.
It proposes completing all local trade transactions in pounds and obtaining the approval of a special committee to transfer the funds of those transactions to dollars and then abroad. Note that this provision is strongly opposed by economic bodies because it restricts the work of the private sector and opens the door to discretion in banking transactions. But to what extent can the Central Bank of Lebanon maintain current monetary stability and at what cost?
Adnan Ramal, a member of the Economic and Social Council, believes that monetary stability is threatened even before the approval of the budget and the liberalization of the exchange rate or the adjustment of the exchange rate for cash bank withdrawals.
What contributed to this stability is the state's refraining from spending what it owes in dollars or postponing its payment, except for the salaries of the public sector. He explained that in light of the central bank's decision not to touch the reserves and while the funds of the special drawing rights, which have supported the state's expenses by about $50 million monthly since 2021, have been exhausted, it has become difficult to secure the funds to pay the state's due obligations.
Since the end of Riad Salameh's term, there has been severe rationing in paying these obligations, including hospital commitments, the needs of the security and military forces, and spending on public facilities, notably the helpless Electricite du Liban, unable to use the 55 trillion Lebanese pounds in its account with the Central Bank of Lebanon due to the latter's refusal to transfer it to dollars… and other state revenues that the Central Bank of Lebanon refuses to transfer to dollars to pay the state's obligations, except for the part related to the salaries and wages of the public sector...
However, Ramal pointed out that postponing the payment of the state's obligations cannot last because it will lead to the closure of public facilities sooner or later, and thus the central bank cannot maintain this balance between supply and demand, and it does not have the sustainability to maintain current monetary stability for a long time.
Regarding the impact of liberalizing the exchange rate for cash bank withdrawals, Ramal stressed the responsibility of the collapse of the exchange rate and the rise in inflation to depositors and their right to withdraw their deposits at a liberalized exchange rate, as there are other means to maintain monetary stability to some extent, alongside granting depositors their rights.
Considering that adjusting the exchange rate for cash bank withdrawals must be done before approving the 2024 budget since legislation is stalled, and the chances of approving the budget are slim.
No depositor benefits from Circular 151 which is unfair to them, and thus it is not possible to continue dealing unfairly with depositors waiting for the liberalization of the official exchange rate and the approval of the budget.
Ramal explained that when the exchange rate is liberalized or a liberalized exchange rate is adopted in the budget, deposits will become liberalized by law and by the official exchange rate.
Thus, depositors may resort to withdrawing their deposits according to the liberalized rate, which no depositor does today even though it is legal, due to the difference between the official exchange rate (15,000 pounds) and the parallel market rate (89,000 pounds).
Therefore, the liberalization or adjustment of the exchange rate in the banking sector will no longer be subject to the withdrawal ceiling specified in Circular 151 because this circular has expired, and thus the Central Bank of Lebanon will have to set a ceiling for cash withdrawals in case the Capital Control Law is not approved, to limit the massive injection of cash liquidity in pounds into the market.
As for compelling importers to secure amounts in pounds to open import credits, or the Capital Control Law project that stipulates completing local trade transactions in pounds and obtaining the approval of a special committee to transfer the funds of those transactions to dollars and then abroad, Ramal expressed objection to this proposal, as it will restrict and freeze commercial activity and open the door to discretion in the committee's work.
He pointed out that no one will trust depositing their money in the banking sector in pounds awaiting the committee's approval or disapproval, which will revive the black market for buying dollars and transferring them abroad through unofficial means.
On the other hand, Hani Bahasli, the head of the union of importers of foodstuffs, explained that transferring trade transactions back to the Lebanese pound, as proposed by the budget project or the Capital Control Law project, cannot be adopted before stabilizing monetary stability and having clarity, stability, and transparency in the exchange rate, and a solid ground on which the economy can rely.
Bahasli believed that the proposal to compel traders or importers to secure cash liquidity in pounds to open credits and transfer abroad, "will turn us into a 100% directed system and indirectly impose the completion of transactions in the Lebanese pound, meaning reinflating the volume of cash in pounds in the market, and the return of speculations to the market."