ERASE, Currency Crisis, Economic Update, Currency Board and Dollarization

Dollarization Progressively Becoming Official

11:35 | 28 February 2023LIMS output
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Dollarization Progressively Becoming Official

The Minister of Economy and Trade has rescheduled the dollarization of prices in supermarkets, moving it to March 1. This marks an advanced phase of the dollarization process, as all business-to-business transactions have already been dollarized. The tourism industry, which includes restaurants, bars, and cafés, was used as a testing ground for the conversion of consumer sectors to US dollars.

LIMS congratulated the government for finally agreeing to allow supermarkets to price in dollars. LIMS have been advocating for this reform since 2020 when the institute launched the ERASE campaign (Ease Restrictions And Stabilize Exchange rate). The sharp fluctuation of the Lebanese pound (LBP) exchange rate makes it impossible for supermarkets and groceries to price accurately. They end up closing when sharp increases happen and pricing a hefty margin to protect their working capital against exchange rate risk.  Although expressed on the shelves in LBP, prices are in reality dollarized already. If the USD increases by 10% for instance, prices in stores are immediately changed to reflect the new exchange rate. As well, the pricing of goods and services in LBP is ineffective for consumers as it constantly changes, stripping them from the ability to control their budget and price compare. Dollar pricing can achieve relative price stability, protect citizens’ purchasing power, and attract investments to the country. The official trend towards dollar pricing in commercial sectors is necessary.

LIMS recommended not to stop at the dollarization of prices and embrace a full dollarization of the economy. Contracts should also be changed to dollars, including salaries, taxes, and loans. The LBP should be withdrawn from circulation and exchanged for dollars and Lebanon’s official currency should become the dollar. Alternatively, Lebanon could adopt hidden dollarization, by using a currency board system. 

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