It is a perilous situation trying to exchange money in Lebanon. The financially strapped economy has now effectively slashed its dollar peg. Image Credit: Reuters

Beirut: The Lebanese central bank set an exchange rate of 3,625 Lebanese pounds per dollar to be applied by money-transfer firms on Friday - 58 per cent weaker than the official peg as the country grapples with a financial crisis.

The new rate is seen as part of wider moves by the central bank away from a peg in place since 1997. Though the official pegged rate of 1,507.5 pounds is still in place, it amounts to an effective devaluation of the pound, they say.

The new rate applies to money sent through wire transfer offices, which are used by many Lebanese abroad to send money to family at home.

The Lebanese pound has slumped on a parallel market since October, when the country’s long-brewing economic troubles came to a head, prompting a financial and banking crisis.

The authorities are still applying the official pegged rate for essential imports - fuel, wheat and medicine - in an effort to slow spiralling inflation in the import-dependent economy.

“Prices may change every day and will be set the day before,” the central bank source said, adding that the rate reflected the price dollars were fetching at foreign exchange offices. “In the event that there are major fluctuations during the day, the price may be set again during the same day.”

A devaluation in every way

A senior banker said central bank governor Riad Salameh was effectively devaluing the currency without announcing it.

With dollars in short supply, the central bank earlier this month said the money-transfer services must issue cash in the local currency at a “market rate”.

Earlier this week, the central bank also said depositors with dollar accounts in Lebanon would be paid cash in pounds, also at a “market rate”, within each bank’s withdrawal limits.

Banking sources said they expected the rate applied to such withdrawals to be close to the rate set by the central bank for wire transfer firms. Banks, exchange dealers and the central bank will meet on Monday to make a decision.

Pros and cons
Parliament speaker Nabih Berri urged the government on Thursday to use its legal powers to halt the pound’s “dramatic collapse” before it is “too late”.

Finance Minister Ghazi Wazni said on Friday the fall could not be attributed to economic, financial or monetary reasons and said it was down to “strong speculation and manipulation in the market”.

“This increased the fear of citizens and their concern, which brought about an increase in demand for the dollar.”