Beirut, Feb. 1 (BNA): Central Bank of Lebanon Governor Riad Salameh said that the bank’s new official exchange rate was 15,000 pounds per dollar on February 1, representing a 90% decrease from the current official exchange rate, which remained unchanged. 25 years.
A shift from the old rate of 1,507 to 15,000 is still a long way off on the parallel market, as the pound was trading at around 57,000 against the dollar on Tuesday, Reuters reports.
Salameh said the change would apply to banks, leading to a decline in the equity of institutions at the heart of the country’s 2019 financial meltdown.
Analysts expect the shift to have less impact on the broader economy, which is increasingly dollar-dependent and where most trades are conducted at the parallel market rate.
The pound has lost about 97 percent of its value since it began to split from its price of 1,507 in 2019.
Salameh told Reuters that the country’s commercial banks “will see a decrease in the part of their shares in pounds once they are converted into dollars at 15,000 instead of 1,500.”
In order to mitigate the impact of this shift, he said, banks will be given five years to “recompensate the losses caused by the devaluation.”
Salameh said the change to 15,000 was a step towards unifying multiple exchange rates, in line with a draft agreement Lebanon reached with the International Monetary Fund last year that set conditions for launching a $3 billion bailout.
There are still several prices, including the official price, the price of the Central Bank’s exchange platform, which is currently 38 thousand pounds per dollar, and the parallel market price.
The International Monetary Fund favored an immediate unification of rates and said the Lebanese authorities must deal in advance with an estimated $70 billion in financial sector losses – widely seen as the result of decades of heavy spending, corruption and mismanagement.
But draft government plans suggested a longer-term approach. One analyst, Mike Azar, said the five-year period to recoup losses is inconsistent with the IMF’s view that losses must be dealt with quickly.
Without a comprehensive framework for restructuring banks, he said, banks would have to raise capital from shareholders to cover their losses or pass the losses on to depositors by allowing them to withdraw from dollar accounts in local currency.
“They can’t do it right away, so the central bank gives them five years to do it,” said Azar, a former professor of economics at Johns Hopkins University.
The IMF deal is widely seen as the only way for Lebanon to start restoring confidence in its financial system and recovering from collapse.
The change in the exchange rate is not expected to mitigate one of the most debilitating aspects of the crisis for ordinary Lebanese – the inability to freely access their dollar savings.
While capital controls were never officially imposed in Lebanon, since 2019 banks have imposed their own controls, severely limiting withdrawals in dollars and Lebanese pounds.