Beirut: Lebanon said it will allow small depositors to withdraw funds from dollar accounts at a weaker rate than the decades-old fixed regime, the first official move away from the country’s currency peg amid a severe liquidity crisis.
With hardly any dollars circulating in the banking system, lenders will pay out at a “market rate” in Lebanese pounds to clients with accounts of up to $3,000, according to a central bank circular issued Friday.
The rate will be set daily via an electronic platform including local lenders, the central bank and exchange bureaus, according to a separate statement. Customers must empty their account in one go, and the scheme will run for three months.
Separately, clients holding accounts in Lebanese pounds equivalent to $3,000 can transfer the amount into foreign currency at the fixed rate of 1,515 pounds to a dollar, and then withdraw at the new market rate, so they aren’t at a disadvantage.
Broken peg
With the exception of funding made available to importers of essentials such as fuel and medicine, Lebanon’s peg has in effect broken already, undone by the lack of sufficient hard-currency reserves and the drying up of dollar inflows, the government’s main source of funding.
The dollar shortage led to the emergence of a black-market rate that breached 2,800 per dollar this week. Prices of food and goods have spiked by over 50% since October, when nationwide protests erupted and brought down then-Prime Minister Saad Hariri’s cabinet.
Lebanon has begun talks to restructure its $90 billion debt pile, promising to present a comprehensive recovery plan for its “broken” economy before the end of this year. The government faces the triple headwinds of a currency crisis and unsustainable fiscal and current-account deficits, and now has the impact of the coronavirus pandemic to cope with.
