The Lebanese pound maintained a steady exchange rate against the US dollar in July, hovering between 91,000 and 93,000 Lebanese pounds (LBP) per US dollar.
However, this apparent stability was disrupted by a sudden surge to 98,000 LBP per US dollar, observed briefly in mid-July, before reverting back to the familiar rate of 92,000 LBP per US dollar.
LIMS has clarified that the facade of stability surrounding the Lebanese pound is primarily rooted in the Central Bank’s involvement in the foreign exchange market, utilizing the remaining dollar reserves to prop up the pound’s value. This strategy involves reducing the quantity of Lebanese pounds in circulation while simultaneously infusing US dollars. The central bank continues to execute this policy through the payment of state employees’ salaries via the SAYRAFA platform in US dollars, rather than in Lebanese pounds. However, this tactic faces significant challenges. On one hand, it grapples with the consecutive public sector salaries hikes lacking sufficient financing, and on the other hand, it contends with the depletion of foreign reserves that restricts further intervention possibilities.
To surmount these challenges and attain lasting stability for the exchange rate, LIMS proposes the establishment of a currency board.This framework holds the potential to decisively arrest the devaluation of the Lebanese pound against the US dollar, thereby creating a foundation of stability. Beyond its monetary implications, the currency board carries the promise of mitigating poverty, given the pivotal role the devalued pound plays in the impoverishment affecting the Lebanese population.
Unfortunately, the currency board reform encounters resistance from Lebanon’s governing bodies. This opposition emanates from inadvisable counsel from an influential international organization, vested interests, and a dearth of commitment to institutional governance. These elements collectively obstruct the adoption of reforms that could usher in a new era of financial stability and alleviate the challenges faced by the citizens.
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