---
title: "The Pound and the Dollar Exchange Rate: Where To? | Ghazi Mahmoud"
url: https://ghazimahmoud.com/en/articles/2023-04-30-86b1ed/
lang: en
description: "At a time of growing talk about the rise in the exchange rate of the US dollar against the pound, it must first be noted that the depths to which the financial and monetary situation had sunk during the years preceding the eruption of the crisis are the cause of the collapse of the Lebanese pound and the corresponding rise in the exchange rate."
---

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# The Pound and the Dollar Exchange Rate: Where To?

[Brig. Gen. (Ret.) Dr. Ghazi Mahmoud](https://ghazimahmoud.com/en/about/)

30 Apr 2023 · 6 min read

[Banking and money](https://ghazimahmoud.com/en/articles/money/)

At a time of growing talk about the rise in the exchange rate of the US dollar against the pound, it must first be noted that the depths to which the financial and monetary situation had sunk during the years preceding the eruption of the crisis are the cause of the collapse of the Lebanese pound and the corresponding rise in the exchange rate. The eruption of the crisis in the wake of the popular movement of 17 October 2019 exposed the scale of the problem afflicting the national economy, in which high indebtedness is intertwined with a shortage of liquidity in general and a scarcity of foreign currencies in particular. This dealt a blow to confidence in both the financial and monetary conditions, causing a decline in trust in the Lebanese pound and prompting its replacement with foreign currencies, particularly the US dollar. The causes of the economic and financial collapse that swept through Lebanon and was reflected in the pound, which has lost nearly 98% of its value in recent years, lie in the chronic neglect of the productive sectors, depriving the national economy of adequate growth opportunities to attract domestic and foreign investment and create jobs. This resulted in an economy reliant on financial and banking services as well as tourism services, all of which are highly sensitive to political and security developments, which were rarely absent from the domestic scene. The adoption of spending policies disproportionate to the size of the national economy on the one hand and to state revenues from fees and taxes on the other, along with the inability of both to keep pace with the expansion in spending, also played their part in the collapse of the pound. This was especially so because financing this spending drove up the public debt, whose funds were also used to peg the exchange rate from the early 1990s onwards, while fiscal and monetary policies revolved around serving the political establishment and financing its factions regardless of their negative repercussions on the national economy. High interest rates on treasury bills attracted capital instead of its being channelled into productive investments, hindering economic growth across its various productive sectors and increasing the financial burdens on the public treasury. These rates also caused the public debt to balloon within a relatively short period of time, making repayment of the principal of the public debt an impossible task, as state revenues became barely enough to service the debt while it grew like a snowball. What compounded the fragility of the financial situation and paved the way for the collapse of the national currency was the lack, among those in charge of public affairs, of a comprehensive economic vision capable of devising integrated solutions, alongside the absence of good governance in the management of state facilities, which deprived the public treasury of vast revenues squandered in the labyrinths of corruption and patronage. The energy sector, which contributed to the rise in public debt, represents one of the starkest examples of the need for good governance, at a time when its management proved unable to supply the Lebanese with even a fraction of their electricity needs on a sustainable basis; the same is true of many public contracts and construction projects that cost the treasury sums exceeding the returns they yielded. In turn, domestic political instability and divergences among political parties contributed to the deterioration of economic and financial conditions, as internal conflicts and divisions prevented a national consensus on the supreme interest of the country, including its economic interests. While political bickering and strained relations among the factions stood in the way of agreeing on appropriate solutions, quota-sharing brought the adversaries together at the expense of public funds. This made the rise in the exchange rate of the US dollar against the Lebanese pound a natural outcome of the deteriorating economic and financial situation. What short-sighted policies and the absence of competent administration and good governance failed to destroy was finished off by repeated Israeli assaults, which drove up the public debt as a result of the losses inflicted on infrastructure until the recent past. This kept foreign investment away and dampened the enthusiasm of new investors, while these assaults also delayed economic growth and doubled its cost. Lebanon and its fragile economy remain exposed to the risk of Israeli aggression against its territory and vital facilities despite the maritime border demarcation agreement approved at the end of November 2022. On the other hand, some "experts" take pleasure in heralding to the Lebanese the inevitability of a rise in the exchange rate of the US dollar against the Lebanese pound as soon as the holidays are over, predicting that the rate will reach unprecedentedly high ceilings over the next few months. In these forecasts, those "experts" rely on the pace at which the exchange rate rose in the preceding period, calculating on that basis the level this rate will reach in the future. The flaw in these forecasts and conclusions is their reliance on mathematical formulas akin to geometric progressions that ignore the economic indicators driving markets and prices. Responsibility for the rise in the exchange rate naturally does not rest on the shoulders of these "experts", who try to explain its causes and predict what it will be in the future, yet such explanations and forecasts sometimes border on promoting a rise in the exchange rate and justify the actions of speculators chasing profit at the expense of the national currency. This is particularly true as addressing the monetary and economic situation in a negative manner inevitably reflects negatively on the exchange rate in particular and the economy in general due to its psychological effect on consumers, just as repeatedly zeroing in on the future of the exchange rate compounds the impact of the causes that have led and continue to lead to its rise against the pound. Whatever the reasons that led to the stability of the US dollar exchange rate during this past April, most of them realistic, whether in terms of the desire of the political and monetary authorities to maintain this stability during the holy month of Ramadan and see through the Easter and Eid al-Fitr holidays, or in terms of the scale of Banque du Liban's intervention in the foreign exchange market to preserve exchange rate stability, that does not negate the role of speculators against the national currency in securing the stability of this rate; indeed, this stability would not have been achieved without the state of truce observed by major parallel-market money changers. Given the inability of the state, and Banque du Liban along with it, to rein in speculation against the national currency, it may be an exaggeration to ask whether these speculators possess any sense of patriotism that might deter them from continuing to take part in the ongoing crime against the Lebanese and their national currency.

Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2023-04-30-86b1ed/)

## Published in

- [LinkedIn](https://www.linkedin.com/pulse/%D8%A7%D9%84%D9%84%D9%8A%D8%B1%D8%A9-%D9%88%D8%B3%D9%80%D8%B9%D8%B1-%D8%B5%D8%B1%D9%81-%D8%A7%D9%84%D8%AF%D9%88%D9%84%D8%A7%D8%B1-%D8%A7%D9%84%D9%89-%D8%A3%D9%8A%D9%86-ghazi-mahmoud/)
- [OZ Arab Media](https://ozarab.media/الليرة-وسـعر-صرف-الدولار،-الى-أين؟/)

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