--- title: "Where is the Lebanese pound headed after the end of the governor's term? | Ghazi Mahmoud" url: https://ghazimahmoud.com/en/articles/2023-07-27-f38def/ lang: en description: "The stances of the deputy governors of Banque du Liban on the eve of the end of the governor's term this July 31, whether in threatening to resign or in requesting the enactment of financial and monetary legislation legalising the bank's intervention in the foreign exchange market, raise questions about the monetary policy they intend to implement." --- [All articles](https://ghazimahmoud.com/en/articles/) # Where is the Lebanese pound headed after the end of the governor's term? [Brig. Gen. (Ret.) Dr. Ghazi Mahmoud](https://ghazimahmoud.com/en/about/) 27 Jul 2023 · 8 min read [Banking and money](https://ghazimahmoud.com/en/articles/money/) The stances of the deputy governors of Banque du Liban on the eve of the end of the governor's term this July 31, whether in threatening to resign or in requesting the enactment of financial and monetary legislation legalising the bank's intervention in the foreign exchange market, raise questions about the monetary policy they intend to implement. Their positions on the Sayrafa platform, and the need to replace it with another platform whose operations are transparent and do not provide gains for influential figures at the expense of public funds and depositors' money, also raise the question of the future of the national currency and its exchange rate against the US dollar. This is especially so given that the depths to which the pound has sunk as a result of the crisis sweeping the Lebanese economy are unprecedented, even though it is not the first time that the value of the pound has depreciated against foreign currencies in general and the US dollar in particular. After the pound was shaken by the liquidity crisis and the bankruptcy of Intra Bank in the second half of the 1960s, it was not long before it regained its stability after losing nearly 10% of its value (the exchange rate rose from 3.11 pounds to the dollar in late April 1966 to 3.20 in September 1966). The end of the Intra Bank crisis did not prevent the exchange rate of the Lebanese pound from continuing its rise against the US dollar, reaching nearly 4 pounds to a single dollar in March 1981. In June 1982, in the wake of the Israeli invasion, the exchange rate rose to reach 5 Lebanese pounds against a single dollar, before the pound recouped some of its losses a few months later and rose by the end of 1982 to bring the rate below 5 pounds to a single dollar. As for the depreciation witnessed by the pound in 1987, it was a prelude to the exchange rate multiplying nearly 100 times compared with where it stood at the end of 1984, reaching 550 pounds against a single US dollar. After the exchange rate saw some improvement in 1988, reaching roughly 380 pounds, the value of the pound resumed its decline in 1990, recording 879 Lebanese pounds against the dollar, coinciding with the escalation of the political crisis that preceded the adoption of the Taif Agreement. In 1992, the exchange rate of the Lebanese pound against the US dollar reached 2,825 pounds during the month of September, meaning that this rate had multiplied more than threefold compared with what it had been in 1990. It subsequently fell back to close the year at 1,838 pounds, after the monetary authority worked to curb the collapse in the pound's value in implementation of the provisions of the Code of Money and Credit, particularly Article 57 thereof, which entrusts the task of stabilising the exchange rate to the central bank. Each time, to curb the collapse in the value of the national currency and counter the exchange rate fluctuations mentioned above, Banque du Liban resorted to intervening in the foreign exchange market as a buyer or seller of the national currency until balance was restored to the money market and an appropriate exchange rate was maintained. Intervention in the foreign exchange market, alongside the interest rate, is among the tools used by central banks to curb the collapse of the national currency's exchange rate, just as the abstention of these banks from intervening in the foreign exchange market in turn constitutes a tool for influencing the exchange rate. Banque du Liban persisted in intervening in the foreign exchange market until early October 2019, when it restricted its commitment to the nominal exchange rate of the pound solely to its dealings with commercial banks, which in turn adopted it as the basis for dealing with their customers. As for transactions in dollars outside the banking sector, their rate began at that time to diverge from the official rate by a premium ranging between 3 and 6%, as a result of Banque du Liban's abstention from intervening in the foreign exchange market, before subsequently spiralling out of control. Instead of resuming its intervention in the foreign exchange market to preserve the stability of the pound's exchange rate, Banque du Liban continued to refrain from intervening despite the accelerating depreciation. Banque du Liban's abstention from intervening in the foreign exchange market took place at a time when its declared foreign currency reserves exceeded 38 billion US dollars, an amount that was more than sufficient for the central bank to intervene in the market and curb exchange rate fluctuations, only for the greater part of it to be squandered instead on subsidising imports. Banque du Liban's creation of Sayrafa under Circular 157, as a platform for buying and selling cash foreign currencies, particularly the US dollar, came as part of its attempt to return to intervening in the foreign exchange market to rein in fluctuations in the pound's exchange rate and curb speculation. This was on the basis that supply and demand directed to banks and money changers would determine the trading rate, provided that the margins applied between the selling rate and the buying rate, as well as any kind of commission, remained within customary limits and under no circumstances exceeded a maximum of 1% of the buying rate. At a time when market forces of supply and demand for the US dollar ought to have determined the real exchange rate, Banque du Liban proceeded to set the trading rate on the platform, representing a continuation of the previous policy of fixing the exchange rate. While the platform aimed to prevent the exchange rate from spiralling out of control and keep it below the Sayrafa ceiling, the platform quickly lost the initiative, so that the rate it adopted came to trail the parallel market rate by a certain margin rather than the other way round. The crux of the problem lies in the fact that the volume of dollars traded through the platform and those available with money changers is insufficient to meet the volume of demand in the market, especially for imports, in addition to demand from individuals. Another problem is that the volume of demand for the dollar remains large, leading to the depletion of what remains of Banque du Liban's reserves, which have fallen from 18 billion dollars when the platform was launched to slightly more than 9 billion today, and perhaps less than that, while the haemorrhaging continues. Whereas the platform had been counted upon to contribute to curbing the collapse of the national currency, it formed an additional market for speculation against it, and its performance was confined to providing gains for traders and certain beneficiaries at the expense of the pound. The role of the Sayrafa platform was expanded to include subsidising the salaries of public sector employees, military personnel, retirees and some private sector employees, providing a justification for Banque du Liban to continue using depositors' funds in its intervention in the foreign exchange market. On the eve of the end of the governor's term at the close of this month, observers look to the importance of reconsidering the foundations upon which the Sayrafa platform was built and its operating mechanisms, in order to address the errors that have accompanied its operations and close the loopholes that have emerged in its performance. For changing the current monetary policy and addressing the shortage of foreign currencies cannot take place overnight, which calls for drawing on the positives of current policies, if any exist, developing them and transitioning from them to more far-sighted and transparent policies. Stopping the collapse of the national currency, repairing monetary policies and restoring confidence in the banking sector are the responsibility of everyone who holds a position in the monetary authority, and they may not evade performing what duty dictates, whatever the pretexts. Halting the collapse will not be achieved through good intentions and optimism for the best, but rather requires tireless work that builds on previous achievements, however modest, and a marshalling of resolve to reach the desired goals, bearing in mind that renewing and developing policies requires changing their makers. Conversely, the insistence of those in charge of public affairs on evading recourse to the law and compliance with its requirements will deepen the monetary and financial crisis and compound them both. Promoting new monetary policies in the absence of a clear vision of them and of the timeframes these policies require reflects a superficiality in dealing with the possibility of abandoning current monetary policies as soon as the current governor's term ends, given that a transitional period is indispensable to secure a proper launch for the new monetary policies and give them the opportunity to achieve their intended goals. It is surprising that the deputy governors should evade assuming their responsibilities in assisting the first deputy governor in running the public service at this critical moment in Lebanon's history, as the presidential vacuum continues for the ninth consecutive month under a caretaker government that lacks national consensus around it. And the reluctance of the first deputy governor to assume the responsibility of acting as central bank governor, whether out of trepidation at bearing the responsibility or as a result of political pressures, contributes in both cases to undermining the public service and preventing the correction of monetary policies. In the stance of Banque du Liban's deputy governors and their failure to shoulder their responsibilities lies an indictment of the parties holding political decision-making power and of the pattern of clientelism they have entrenched in state institutions. Keeping the same person as governor of the central bank for thirty years, meanwhile, demonstrates the sterility of the political class, its inability to develop itself and renew its tools, and its persistence in violating the constitution and the law. Hence, the prerequisite for restoring stability to the national currency and placing the economic crisis on the path to resolution is respecting the constitution, abiding by the law and enforcing its provisions, indeed making it the dividing line among the various authorities. Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2023-07-27-f38def/) ## Published in - [Lebanon Files](https://archive.lebanonfiles.com/2023/articles/باقلامهم/الليرة-اللبنانية-الى-أين-بعد-انتهاء-ول/) - [OZ Arab Media](https://ozarab.media/الليرة-اللبنانية-الى-أين-بعد-انتهاء-ول/) ## More on banking and money [All articles on this subject](https://ghazimahmoud.com/en/articles/money/) [27 Jun 2023 · Banque du Liban's Measures and Circulars and the Lost Confidence · LinkedIn, Lebanon Files ](https://ghazimahmoud.com/en/articles/2023-06-27-4e413a/) [30 May 2023 · Exchange Rate Stability and the Prospects for Its Decline · LinkedIn, Channel 23 ](https://ghazimahmoud.com/en/articles/2023-05-30-7f6985/) [23 May 2023 · Between the Grey List and Normalization with the Crisis · LinkedIn, OZ Arab Media ](https://ghazimahmoud.com/en/articles/2023-05-23-ed2b38/)