Banque du Liban (Lebanon’s central bank, also called BdL) declared it would reduce fuel subsidizes. In fact, BdL supplied dollars to fuel importers through its Sayrafa exchange platform for 26,000 LBP to the dollar compared to 33,000 LBP to the dollar on the black market. This multiple exchange rate scheme provides a 20% subsidy to fuel importers.
LIMS views the central bank’s announcement as a beneficial step and should have happened a long time ago. The institute also called for subsidies to be stopped entirely. As long as the subsidy program is active, the central bank’s foreign reserves will continue being siphoned. Those reserves are actually what remains of dollar denominated deposits placed by people at commercial banks. In reality, those commercial banks deposited the funds at the central bank. Thus, the continuous squandering of such deposits is making financial solutions related to bank depositors much more difficult.
Due to importers having to buy their dollars from the black market, the public wonders about the likelihood of a further Lebanese pound (LBP) devaluation. LIMS explained that as long as the money supply is constant, the lifting of subsidies will not impact the exchange rate. For illustration, without more LBPs in the market, the demand for dollars will not spike, but only shift to essential products, such as gas. However, the continuous increase in the money supply will, regardless of subsidies, up the demand of foreign currency, thus devaluing the LBP.