---
title: "Exchange Rate Stability and the Prospects for Its Decline | Ghazi Mahmoud"
url: https://ghazimahmoud.com/en/articles/2023-05-30-7f6985/
lang: en
description: "Since the beginning of this May, Lebanon has witnessed stability in the exchange rate after it briefly touched 145,000 pounds to the dollar in the middle of last March, before gradually declining again and fluctuating during this past April between 98,000 and 95,000 Lebanese pounds, settling from the start of May until the time of writing these lines at 94,000 pounds."
---

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# Exchange Rate Stability and the Prospects for Its Decline

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

30 May 2023 · 8 min read

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

Since the beginning of this May, Lebanon has witnessed stability in the exchange rate after it briefly touched 145,000 pounds to the dollar in the middle of last March, before gradually declining again and fluctuating during this past April between 98,000 and 95,000 Lebanese pounds, settling from the start of May until the time of writing these lines at 94,000 pounds. The continuation of this stability runs counter to expectations that had regarded it as temporary stability meant to get through the holiday period, and had predicted that the rate would resume its rise as soon as the holidays ended. The collapse that befell the national currency would never have reached such depths had the Lebanese state brought its fiscal policies and the pace of its public spending into line with its fiscal revenues on the one hand, and, in cooperation with the monetary authority, at least during the last decade that preceded the crisis and paved the way for its eruption, initiated a gradual float of the exchange rate so that it might approach its real value. Instead, the state continued to expand its current expenditures, leading to growing public debt on the one hand and a rising deficit in the balance of payments, particularly the trade balance, at the expense of the productive sectors and the competitiveness of the national economy on the other. Paradoxically, Banque du Liban continued to peg the middle rate of the US dollar at 1,507.5 pounds for 27 years without giving any consideration to the cost this peg imposed on new investments, and ignoring the fluctuations of the greenback against other major currencies. Rather than reconsidering its monetary policies when signs of the crisis emerged in 2011, Banque du Liban persisted in its policy of pegging the exchange rate until it issued Circular No. 530 at the end of September 2019 to subsidize the import of specific goods, which amounted to a declaration of the end of its intervention in the foreign exchange market and opened the way for the parallel market. Banque du Liban's creation of the Sayrafa platform at the end of June 2020 compounded the collapse in the value of the pound and drove up the cost of its intervention, draining its foreign currency reserves at the expense of the national economy. The platform has remained unable to achieve the desired stability or at least curb sharp fluctuations in the exchange rate, bearing in mind that the dollar rate on the platform today stands at more than 86,000 Lebanese pounds, whereas the rate adopted at its launch was 3,900 Lebanese pounds to the dollar. Had Banque du Liban intervened in the foreign exchange market from the onset of the pound's deterioration using the very same method it employs on the Sayrafa platform, when it still had sufficient foreign currency assets to make the attempt, it would have been able to limit the collapse of the pound and preserve the bulk of its reserves. Indeed, according to the latest biweekly balance sheet ending on May 15, 2023, Banque du Liban managed to increase its net foreign exchange reserves by around $101 million during the first half of May 2023 to reach roughly $9.5 billion for the same period, thereby replenishing the sums it had injected through the Sayrafa platform. The current period of exchange rate stability stands out as the longest since the collapse began, yet it calls for scrutiny of the reality of this stability at a time when suspicions of corruption and allegations have targeted the governor of Banque du Liban, his monetary policies, and his involvement in money laundering with other associates. This prompts questions about the causes that contributed to this stability, given that merely mentioning the person of the Banque du Liban governor or whispering about his monetary policies used to be enough to send the exchange rate spiraling out of control. In explaining the current stability, some observers argue that starting in mid-March, Banque du Liban amassed enough dollars to meet its monthly payments on the one hand and keep the exchange rate in check on the other during the remaining three months of the Banque du Liban governor's term. This explains why the dollar exchange rate rose to nearly 145,000 pounds at that time. Yet in its previous interventions, Banque du Liban failed to rein in the rising exchange rate, which would resume its climb to surpass the threshold it had touched prior to the intervention, whether through dollar injections or through circulars supporting its interventions. On the other hand, skepticism regarding Banque du Liban's ability to maintain exchange rate stability is reinforced by the ambiguity and lack of transparency in the bank's management of its collection of cash dollars from the market and in the terms under which they are reinjected through the Sayrafa platform, at a time when skepticism has come to accompany every measure undertaken by Banque du Liban, causing numerous opportunities to prevent the collapse to be lost. Confidence, after all, is one of the most important pillars of financial and monetary markets and a primary factor in their stability, and those in charge of monetary policy squandered within a few months the confidence they had enjoyed for more than a quarter of a century. Notably, despite the issuance of an international arrest warrant by the French judiciary against the governor of Banque du Liban in the middle of this May and a similar arrest warrant communicated to Lebanon by the German authorities on Tuesday the 30th of this month, the exchange rate maintained its stability without any notable adjustments, as the margins between the selling and buying rates remained unchanged. The same holds true for trading volume on the Sayrafa platform, whose daily average exceeded $110 million, while its fluctuations remained within the general average without recording any notable variances. The lack of transparency in the monetary policy pursued by Banque du Liban and its unconstructive ambiguity make it difficult to favor positive forecasts for the future of the exchange rate, given the vacancy in the presidency of the republic and the absence of any attempt by the caretaker government to limit the repercussions of the economic crisis and address its causes on the one hand, and the bank's limited resources that can be used to curb its rise on the other. This renders any amount of dollars that Banque du Liban might amass insufficient, however large, to get through this phase, regulate the pace of the exchange rate, and meet its monthly payments over the remaining 30 days. In light of these realities, one must ask about the causes that led to this stability in the exchange rate, and whether there are indicators that help provide the minimum conditions for the desired stability and pave the way for a potential decline. As for the causes of this stability in the exchange rate, they stem from the interplay of a set of factors, including:

- The rising pace of expatriate remittances year after year, which according to World Bank estimates reached $6.8 billion in 2022, ranking Lebanon second globally in terms of the contribution of expatriate remittances to gross domestic product, estimated by the bank at around 38%, which helped provide liquidity in the greenback and offset no small part of the dollar shortage. - Higher state revenues from fees and taxes following the approval of recent fee increases and the linking of the customs dollar to the Sayrafa platform dollar, contributing to a balance between state revenues and expenditures. - The payment of salaries for civilian and military public sector employees in US dollars, in addition to retirees, which reduced demand for the national currency and curtailed opportunities for speculation against it, even as the cost of these salaries to the Lebanese state declines as it moves toward linking the salary dollar to Sayrafa, leading to a further drop. - A decline in import volumes after the raising of the customs dollar, whose approval merchants had anticipated by importing their needed supplies in advance, helping reduce demand for the dollar and calm the markets. - A decline in the smuggling of goods, merchandise, and fuel across the border after subsidies on them were lifted, which allowed the import of new quantities to be refinanced from domestic sales revenues without placing heavy pressure on demand for foreign currencies. - The pricing of goods in commercial establishments and shops in US dollars alongside the option to pay in dollars, both of which curbed the need for the pound to settle purchases, as did services in the liberal professions, which providers priced in dollars at their previous levels. - The diminished ability of money changers to speculate against the Lebanese pound as a result of the slower pace of demand for the national currency against the US dollar, for the reasons detailed above. Meanwhile, some economists hope that the stability of the exchange rate will mark the prelude to its gradual decline, especially since the level it has reached cannot reflect the true price of the dollar. After all, profit-driven speculation at the expense of the national currency is the cause of the sharp fluctuations and steep rise witnessed in the exchange rate, movements far removed from market mechanisms of supply and demand, given that increases used to occur after business hours and during holidays in violation of the most basic rules of trading. Perhaps the most the Lebanese aspire to today is for the exchange rate to maintain its current stability and for campaigns promoting the prospect of a renewed rise to cease, despite the importance of the recent intervention by the Central Council of Banque du Liban to regulate the operation of the Sayrafa platform and its potential impact in lowering the exchange rate, because they recognize that its decline requires a solution to the political crisis in which the country is mired and moving through it toward addressing its chronic economic and financial dilemmas.

Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2023-05-30-7f6985/)

## Published in

- [LinkedIn](https://www.linkedin.com/pulse/%D8%A7%D8%B3%D8%AA%D9%82%D8%B1%D8%A7%D8%B1-%D8%B3%D8%B9%D8%B1-%D8%A7%D9%84%D8%B5%D8%B1%D9%81-%D9%88%D8%A7%D8%AD%D8%AA%D9%85%D8%A7%D9%84%D8%A7%D8%AA-%D8%A7%D9%86%D8%AE%D9%81%D8%A7%D8%B6%D9%87-ghazi-mahmoud/)
- [Channel 23](https://ch23.com/Article/74609/استقرار-سعر-الصرف-واحتمالات-انخفاضه)
- [Lebanon Files](https://archive.lebanonfiles.com/2023/articles/باقلامهم/استقرار-سعر-الصرف-واحتمالات-انخفاضه/)
- [OZ Arab Media](https://ozarab.media/استقرار-سعر-الصرف-واحتمالات-انخفاضه/)

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