On June 2, the Ministry of Tourism allowed the tourism industry to express their prices in US dollars (USD) during the summer season of June to September 2022, provided that the final bill includes the price in both Lebanese pounds (LBP) and USD.

LIMS considered this decision as a valuable policy win that could serve as precedent for other sectors. LIMS has been advocating for adopting a full dollarization or a currency board system in Lebanon. In our May 2020 newsletter, we explained that dollarization is inevitable: “People in Lebanon are slowly moving towards dollarized transactions, given the instability of the Lebanese pound (LBP)” and we added that “shops are changing their prices to reflect the market exchange rate”.

As a matter of fact, the Lebanese pound is not a usable currency anymore since it lost its ability to be medium of exchange, store of value, unit of account, and mean for deferred payment. Furthermore, the continuous devaluation and high volatility of the LBP is driving an increased number of people to fall below the poverty line. In turn, this is creating a pricing problem for businesses, and reducing the country’s ability to attract investments and create jobs.

Our February 2022 newsletter stated that “Circular 161 shed light on the benefits of a full dollarization and showed that low-income individuals are the main beneficiaries of a currency substitution…a full dollarization or a currency board would protect employees’ salaries from devaluation, and would make economic calculations easier for businesses, as well as paving the way for more transparent pricing.” 

After the ministry’s decision, LIMS accelerated the campaign arguing for the generalization of this policy and the switch to a full dollarization as follows. First, all prices in every sector should be allowed to express in USD following the example of the tourism industry, which would lead to relatively more stable prices. Second, businesses who price in USD will be able to dollarize their payments, including wages which would allow private sector employees to consume the dollarized items. Third, the government will be able to dollarize taxes once the private sector is fully dollarized and consequently dollarize wages of public sector employees at the market exchange rate. Finally, the central bank would buy all existing LBP in circulation and LBP denominated deposits. This operation would cost less than 3 billion dollars for a central bank that has more than $10 billion dollars in foreign exchange reserves. There is also some work to be done on the existing contracts denominated in LBP, but thiis policy would be extremely more efficient in reducing the impact of currency devaluation and hyperinflation on the poor than spending 7 billion dollars a year on subsidies.

LIMS Media Interviews:

• Devaluation of the currency… dollarization is the solution, June 28,2022: Lebanon Debate, Article AR
• Can withdrawing the Lebanese pound from circulation resolve the problem? June 24,2022: Republic, Article AR      
• Considering the trend to “dollarization” of goods and services. What is the future of the Lebanese economy? June 18,2022: Independence, Article AR
• Economist: This is how we save the economy from collapse, June 13,2022: Lebanon Debate, Article AR
• Summer Season is in dollars…. what are the reasons for this decision? June 6,2022: Facebook, Live | Facebook
• Dollarization of prices opens the door for the dollarization of wages, June 3,2022: VDL, Radio Interview AR