ABL and Sector News

Explanation of the rise in the dollar exchange rate

March 03 2021

The Association of Banks in Lebanon published the following press release:

The ABL categorically denies all news spreading these past few days and linking banks to the surge of the dollar exchange rate on the black market. The requirements of banking liquidity abroad as stipulated in BDL (Central Bank) circular 154 exceed USD 3.4 billion at the sector level. Could it be therefore possible for banks to buy such amount from the local black market which volume does not exceed few million dollars?

The reasons behind the increase of the dollar exchange rate on the black market are the following:

1. The country’s political uncertainty and tensions in the absence of any effort to form a new government seven month after the resignation of the previous one.

2. Importations that are not subsidized by the BDL, of which the estimated value is no less than USD 5 billion per year, the thing that presses importers to resort to the black market in order to ensure the required dollars in cash.

3. The scarcity of dollars on the local market due to the considerable decline in foreign cash flow, leading to a balance of payments deficit of USD 10.5 billion in 2020; the largest deficit Lebanon has witnessed.

4. The printing of Lebanese pounds in order to monetize the public deficit, the thing that led to an increase in the amount of cash in circulation, from LBP 9,818 billion by the end of 2019 to LBP 29,242 billion by the end of 2020.

5. The illegal pricing and trading of the dollars via electronic platforms that need legal proceedings in order to be shut down.

6. The stockpiling of dollars by citizens who are anxious about the future.

It is important to mention that in order to ensure the foreign liquidity, banks rely on selling their operating units abroad and on discounting their USD loans, in addition to the cash contributions provided by shareholders and depositors (as per BDL circular 154). There is consequently no need to resort to the parallel market in Lebanon.

Finally, controlling the dollar on the black market depends on the political developments that could restore the confidence of the Lebanese people, and on the adoption of inclusive policies by the various concerned authorities, in order to limit Lebanon’s foreign financial deficits.

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