ERASE, Currency Crisis, Inflation and Currency Devaluation, Economic Update

Lebanon’s Central Bank Leadership Transition: A Controversial Proposal

12:06 | 31 August 2023LIMS output
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Central Bank

The first vice governor of Lebanon’s central bank, Wassim Mansouri, assumed the role of interim head of the Banque du Liban after ruling politicians failed to appoint a successor to Riad Salameh. The new acting governor declared his intention to phase out the central bank’s exchange platform, known as Sayrafa. He also proposed a plan that underscores the imperative for the parliament to enact the 2023 and 2024 budgets, as well as the capital control and financial losses resolution laws. However, beneath the surface of this call for reforms lies a proposal that raises eyebrows: lending foreign exchange reserves to the government.

LIMS argued that extending credit to the government risks wasting the remainder of depositors’ money and aggravating the current financial crisis. The act of loaning the central bank’s money to the government is a major cause to the banking system’s financial losses and the current crisis. The plan also perpetuates fiscal irresponsibility and hampers needed adjustments. The dependence on central bank funds would incentivize the Lebanese government to forgo essential reforms, such as cutting down expenditure. For the past three years, the government has been dragging its feet on these reforms, impeding Lebanon’s path back to stability and growth. Furthermore, the erosion of Banque du Liban’s autonomy in the pursuit of this plan threatens the institution’s independence and exposes it to undue political pressure, thereby undermining Lebanon’s adjustment effort. LIMS added that exchange rate stability can be ensured without the need of wasting foreign exchange reserves. Maintaining money supply at 60 trillion Lebanese pounds in circulation, without additional printing, will stabilize the exchange rate.  

Regarding the central bank’s electronic exchange platform, SAYRAFA, LIMS explained that the platform was previously utilized by the Central Bank for foreign exchange interventions. One notable intervention strategy involved disbursing public sector employees’ wages in US dollars rather than Lebanese pounds. The acting governor intends to preserve the current salary and wage structure during the initial phase before executing a complete exit in the second phase. Simultaneously, the central bank is exploring alternative platforms in collaboration with renowned international entities such as Bloomberg and Reuters to bolster transparency.

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