After discussing the currency board reform in two official meetings with the National Economy, Trade, Industry and Planning Committee at the Lebanese parliament, the proposal brought forward by LIMS and Professor Steve Hanke has been the core debate in political circles. LIMS spared no effort in trying to raise awareness on the importance of adopting a currency board, by preparing a document that answers the questions and doubts expressed by MPs of the committee.
LIMS explained that a currency board is a set of strict rules that govern the operation of the central bank and regulates the issuance of money, in opposition to the currently adopted discretionary monetary policy. Moreover, Lebanon has enough dollar reserves to back 100% of the 84,000 billion LBP liabilities of the central bank, making them fully redeemable in foreign anchor reserves at a fixed exchange rate, therefore ending the currency crisis immediately. This monetary arrangement ensures a stable currency and paves the way for more reforms.
By eliminating currency risk, a currency board would enable capital inflows to Lebanon to take advantage of interest rate arbitrage and the now cheaper local assets. This new dynamic would progressively help banks reduce their losses, ease withdrawal limit, shorten the capital control period, and restore part of their clients’ deposits. The relaunched economy would also increase government’s revenues and the lower interest rates would decrease the debt service, thus edging closer to balancing the state budget.