Besieging the Cash Economy and the Suffering of the Lebanese
On Friday, November 14, 2025, Banque du Liban announced the imposition of precautionary measures on all non-banking financial institutions licensed by it, including money transfer companies, currency exchange firms, and other entities engaged in handling foreign-currency cash and transferring it to and from Lebanon. This announcement has sparked a wave of questions over the repercussions of these measures and the feasibility of implementing them amid the critical financial conditions the country is experiencing.
The circular, which serves as a first step in a series of anticipated measures, aims to prevent the movement of illicit or illegally acquired funds through these institutions, strengthen the compliance environment within the financial sector, and tighten procedures for all legal and natural persons involved in cash transactions, all the way to the ultimate beneficial owners, helping to remove Lebanon from the grey list of the Financial Action Task Force (FATF), on which it was placed in 2023 due to deficiencies in combating money laundering and terrorist financing.
According to Banque du Liban's announcement, the subsequent phase will involve applying additional precautionary measures to commercial banks, establishing multiple layers of controls and audit points aimed at detecting and containing illicit funds, and preventing their circulation through the banking system and financial sector networks. The Banking Control Commission is expected to play a central role in monitoring the implementation of these measures and the extent of these institutions' compliance with them, and in taking appropriate action against entities that fail to meet the required standards.
It is worth noting that the growing reliance of the Lebanese on cash transactions, and the resulting parallel economy known as the cash economy, came as a direct consequence of banks' refusal since 2019 to meet the needs of depositors and productive sectors, and their suspension of most credit services. Without the cash economy, the Lebanese would neither have been able to sustain a bare minimum of economic activity nor cope with the financial collapse that wiped out their purchasing power. Indeed, it can be said that cash circulation contributed, to some extent, to securing a relatively soft landing for the economy and keeping the wheels of the economy turning at a minimum level in the absence of the banking system.
By contrast, the International Monetary Fund views the cash economy as a "normalization of the crisis" rather than a path toward stability, according to a report on the Lebanese economy published in the spring of 2023. The Fund considers that expanding cash dollarization deepens economic contraction, limits the effectiveness of fiscal and monetary policies, heightens money-laundering risks, exacerbates tax evasion, and bolsters the informal economy at the expense of the productive economy.
While there is an urgent need to curb the cash economy and achieve financial regularity, tightening compliance procedures on money transfers down to 1,000 US dollars, at a time when that sum is no longer enough to cover a small family's expenses for a month, raises questions about the utility of these restrictions. This is especially so given that Lebanese law allows arriving and departing travelers to carry 15,000 US dollars without declaring the sum to the relevant authorities at border crossings, creating a gap in regulatory logic and weakening the effectiveness of oversight.
Meanwhile, betting on drying up Hezbollah's funding sources through stricter compliance appears unrealistic, because cross-border financing networks are too complex to be addressed by forms and isolated supervisory procedures within the Lebanese financial sector. Over recent years, these networks have developed alternative tools to traditional financial channels, drawing on modern financial applications and digital payment systems, particularly cryptocurrencies, which afford a high degree of secrecy, make cross-border identification difficult, and evade traditional banking oversight.
This reality raises an additional question: does yielding to pressure from the joint US delegation from the US Treasury Department and the National Security Council, which made the rounds in Beirut early last week, justify the added strain that the new measures may inflict on the Lebanese? That applies particularly to the middle class, which depends on remittances from its children abroad.
The fundamental question remains: what has become of the banking sector reform plan? Cash circulation is not the cause of the crisis, but a direct result of the collapse of confidence in the banks. Banque du Liban would have done better to direct its efforts toward restructuring the banks, determining the scale of losses, protecting depositors' rights, and working to rebuild trust in the financial system so that the Lebanese return to conducting their transactions through banks rather than carrying bags of cash. Only then can the new measures on compliance and combating illicit funds achieve their intended objectives within a sound banking environment.
The new precautionary measures represent one step along a long and complex path toward improving financial compliance in Lebanon, yet they remain incomplete so long as they are not accompanied by a radical reform of the banking sector that restores lost confidence. The cash economy is not a choice, but the result of the banks' distress and their reluctance to finance the national economy.
Any measures taken outside the framework of a comprehensive plan to restructure the banks may increase pressure on the Lebanese rather than address the root of the problem. What is needed is an integrated plan that strikes a balance between combating illicit funds, making citizens' lives easier, and rebuilding the banking system on solid foundations that put Lebanon on the path to genuine recovery.
Regulatory measures remain incomplete unless incorporated into a comprehensive vision to restructure the Lebanese economy, modernize the supervisory framework, restore the capacity for scrutiny and accountability, and implement effective fiscal and monetary policies. In doing so, financial compliance becomes an instrument of revival rather than a mere response to external pressures or a technical attempt to contain a cash economy that is fundamentally the product of a deep institutional collapse.
Translated from Arabic with AI. Read it in Arabic