TL;DR: The Lebanon pound (L£, LBP) is down 80% against the American dollar since last year, as the LBP continued its free-fall this week in the wake of civil unrest and protests against government corruption and impotence. Banks in the country are hoping the latest effort to raise exchange rates will cease the liquidity crunch eroding value.
Lebanon Pound is Down 80% Against the Dollar Since Last Year
This week, banks in Lebanon without a government mandate or circular from its central bank raised rates to L£3,850 against the US dollar (USD), hoping to stop what appears to be a never-ending slide. Just two weeks ago, the LBP had already crashed double digits in exchange for USD (to as much as L£7,000) on news of widespread protests against notorious government mishandling of monetary policy and deepening effects of coronavirus pandemic response measures.
Historically, such times encourage a run on cash, resulting in higher demand than supply, interest rates follow upward and credit tightens. The impact can be something of a cascading effect for countries in Lebanon’s position, and that liquidity crunch appears to be gaining. History too has kept the peg traditionally around a rocksteady L£1,500, but that is no more — at the time of publication the LBP is down 80% from last year.
What has followed are rates of unemployment and inflation not seen since the country’s civil war, which ended thirty years ago but something like it appears to be reigniting, according to analysts. “Banks have since October frozen people out of their savings and blocked transfers abroad,” Reuters noted. “Under an April central bank circular, they now pay depositors with dollar accounts in cash in the local currency at a ‘market rate’ within limits,” meaning account holders “still lose around 50% of the value of their savings relative to the informal market, where two currency dealers said the greenback traded at 8,000 pounds on Monday.”
Omar Shaar, a 28-year-old programmer, told Al Jazeera, “But now I just can’t work here – there’s no electricity, phone lines are going down, and the exchange rate is completely f*****.” His goal is refuge to Brazil, but with the exchange rate is so abysmal it will take “six to seven months to even be able to buy a ticket.” In just the last week alone “the Lebanese currency has depreciated by more than 30 percent against the US dollar – from below 6,000 pounds to $1, to more than 9,000 pounds to $1,” Al Jazeera noted.
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