The election of Joseph Aoun as Lebanon’s president has raised hopes and economic confidence. Market watchers had speculated that his appointment might trigger an appreciation of the Lebanese pound, yet the currency has remained largely stable, defying expectations.
According to LIMS, the anticipated economic boost has materialized not through currency gains but rather through an increase in foreign exchange reserves. Since the summer of 2023, Lebanon’s central bank has taken crucial steps to stabilize the Lebanese lira by halting the printing of unbacked currency and ceasing financial support to the government and banks. These measures have provided a degree of monetary stability, despite the country’s ongoing economic and security challenges. However, this stability remains fragile, with Lebanon’s financial future hinging on sustained fiscal and monetary discipline.
The recent election of a new president has brought a glimmer of political progress. Yet, LIMS warns that any move to tap into central bank reserves to finance government spending could unravel the delicate equilibrium that has been maintained. Such a decision would likely reignite the financial imbalances that led to the country’s catastrophic 2019 collapse, when unrestrained monetary expansion and reckless fiscal policies triggered a severe economic crisis.
A key pillar of Lebanon’s current stability is ensuring that each Lebanese lira issued is fully backed by dollar reserves at a fixed exchange rate. LIMS has long championed the establishment of a currency board as the most effective safeguard against monetary mismanagement. A currency board would prevent authorities from printing money without sufficient reserves, effectively insulating Lebanon’s financial system from the political pressures that have historically undermined its stability.
The coming months will test whether Lebanon’s policymakers can resist short-term political pressures and adhere to the principles that have, at least for now, contributed to the economic adjustment.
- Before The Presidential Election Session… What Is The Truth Behind The Dollar’s Decline? January 2, 2025. Anbaa Online, Article AR
- How Did The Central Bank’s Adoption Of The “Hidden” Currency Board Contribute To Exchange Rate Stability? January 24, 2025: Radio Liban, Audio Interview AR