Some MPs had concerns about the balance of payment deficit, leading to the loss of foreign exchange reserves. They believed that the country must be able to produce more in order to reduce trade deficit and external imbalances as a pre-condition to any other reform. Other MPs were concerned with the governance of a currency board, the financing of fiscal deficit, and the impact on growth. Several MPs endorsed establishing a currency board in Lebanon and recommended appointing Prof. Hanke as advisor to the parliament to profit from his experience in the field, especially that professor Hanke is willing to offer his services pro-bono.  

The impact of a currency board will not be limited to monetary stability as the substantial reduction in  currency risk would attract capital transfers back to Lebanon. These inflows would profit from the high return offered by the discounted assets and interest rate arbitrage. Capital inflows to Lebanon will therefore help relaunch the economy, increase foreign exchange reserves and reduce fiscal deficit. 
The currency board is not a magic pill that would resolve all Lebanon’s problems. For instance, banks will still have to deal with their “old dollar” problem. However, monetary stability and capital inflows will substantially reduce the problem of “old dollars”. Banks will be able to return to the business of financial intermediation, the time public authorities reach a final settlement with Eurobond holders and decide the way they wish to deal with “old dollars”. Banks are already distinguishing between “old dollars” which remain frozen and “fresh dollars” which profit from a freedom of movement.
While critics are promoting a “Managed Float Arrangement”, LIMS warned that the exchange rate of LBP will drown rather than stay afloat. In a country with weak institutions where the Central Bank prints money to monetize debt, a managed float will lead to further currency devaluation, indefinite capital controls, and squandering of the remaining foreign reserves. At present, Lebanon is experiencing a managed float. The local currency is floating on black market rate and the Central Bank intervenes via the subsidy program. Yet inflation has persisted, and the currency is far from stabilizing. 

LIMS Media Interviews: 

LIMS attributed the currency depreciation to the monetization of the debt and the loss of trust in the Central Bank’s ability to manage the currency. Prior to the crisis, the Central Bank’s primary focus was to lend the government money to finance ever-growing public expenditures and today this debt is serviced by growing money supply. The process of financing debt with money supply is expected to continue in 2021 since the government estimates a fiscal deficit of LBP 5.6 Trillion.

In the past, increasing money supply while maintaining a peg led to the overvaluation of the LBP and the loss of $40 billion on the Central Bank’s balance sheets, $20 billion of which was between 2018 and 2020. Today, growing money supply is responsible for the devaluation of the Lebanese pound and the hyperinflation. 

LIMS Media Interviews: 

As a solution to the deadlock, LIMS advocated replacing the subsidy program with cash transfers. LIMS has assisted the Ministry of Economy and Trade in designing a quasi-universal basic income (quasi-UBI) program that would cost 80% less than the current subsidies program. Unlike current subsidies, the quasi-UBI program would effectively alleviate the weight of the economic crisis, while saving around 10 Billion US dollars over the next 5 years. Alternatively, a direct cash transfer program to the most impoverished families would also provide a cost-efficient solution. 

LIMS Media Interviews:
●    Urgency To Reform Subsidies Disappears, As The State Continues To Evade The Problem, January 6, 2021: Ahwal Media, Article AR 

LIMS urged the Lebanese government to use a plethora of costless ways to help the economy weather the global coronavirus outbreak. The state can offer tax and tariffs exemptions which would substantially reduce the cost of living and help maintain some businesses afloat. Additionally, encouraging individuals to work from home is achievable by improving the internet connection and telecom networks. Such developments are only possible through repealing the telecom monopolies and opening the market to competition. If technological infrastructure improves, firms can then adapt to lockdowns and social distancing more effectively. 

On the healthcare side, LIMS encouraged the government to rely more on the private sector. Major deregulation in the healthcare industry should happen swiftly to allow the provision of additional ICUs and clinical service areas for COVID patients, opening field hospitals, and properly allocating in-kind donations.