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The BDL and the Finance Ministry collaborate to stabilize currency amid dollar demand surge
Press Highlights
2023-10-11 | 00:12
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The BDL and the Finance Ministry collaborate to stabilize currency amid dollar demand surge
Sources familiar with the matter revealed that the Banque du Liban (BDL) has requested the Finance Ministry to suspend any pending payments in Lebanese lira from the Treasury from last Sunday. The move comes in response to concerns of excess lira liquidity injection into the market that could destabilize the country's monetary stability.
Simultaneously, the BDL has urged local banks to reduce their lira liquidity supply to the market. These requests follow significant market activities observed last Saturday, as demand for the US dollar increased among businesses and exchange offices.
This article is originally published in, translated from Lebanese newspaper Al-Akhbar.
Notably, these dollar transactions were being financed directly from the market itself without causing any immediate impact on the exchange rate. The Lebanese lira has maintained relative stability over the past few months.
This stable exchange rate results from the monetary tightening policy pursued by the BDL in coordination with the Finance Ministry.
The acting BDL Governor, Wassim Mansouri, and Finance Minister Youssef Khalil reached an agreement whereby lira injections from the Treasury are limited to specific amounts, ensuring that the quantities released by the ministry do not exceed the available US dollars in the market.
This equation considers the salaries of public sector employees, which amount to LBP 7 trillion, in addition to the sums released by banks in the market. As a result, lira checks that can be exchanged for cash are issued in extremely limited numbers.
The monetary stability policy is based on the premise that cash US dollars are available in the market, primarily supplied from external sources, such as expatriates, tourists, or other entities.
However, these US dollars are only sometimes available in the exact quantities or at the same pace. This prompts the BDL to impose lira monetary tightening measures to curb the demand for the US dollar.
Questions are being raised about the necessity of such a policy in a market where cash circulation constitutes a substantial percentage, exceeding 70 percent, as exchange rate stability only benefits those conducting transactions in lira.
It holds little meaning as long as commercial transactions in the market are predominantly conducted in US dollars, while the consequences of monetary tightening and austerity measures, in contrast, stifle economic activity.
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