L’Orient Today / By Omar Tamo,
The market value of the lira dropped as low as LL10,000 to the dollar on Tuesday. (Credit: AFP)
BEIRUT — As hard currency reserves at the central bank dwindle toward a critical level, the Lebanese lira continued its free fall on Tuesday, hitting a record low against the US dollar amid a stalled government formation process.
The market value of the lira dropped as low as LL10,000 to the dollar at noon on Tuesday, after falling to LL9,000 on Feb. 18 and steadily trending downward since.
The currency has lost more than 15 percent of its value this year amid political uncertainty engendered by a stalled government formation process and worries over Banque du Liban’s diminishing usable foreign currency reserves, which prop up state subsidies on imported fuel, medicine and staple food items and might last only a couple more weeks.
Several money exchangers contacted by L’Orient Today on Tuesday morning said they had halted selling the hard currency. The operator at Mradco exchange — owned by the head of the Syndicate of Money Changers Mahmoud Mourad — said that they had stopped exchanging as they “do not know the current dollar price,” while other exchangers said they have run out of dollars.
The minimum wage in Lebanon, which stands at LL675,000 per month — $450 at the official exchange rate — is now worth $67.5 as the lira hits its lowest market value since the onset of the financial crisis. The lira has lost about 85 percent of its worth since the official peg of LL1,507.5 to the dollar started showing cracks during the second half of 2019.
Banque du Liban stopped injecting cash dollars into the market to support the lira exchange rate in mid-January, money changers told L’Orient Today, just as Lebanon entered a countrywide COVID-19 lockdown during which all but essential businesses and factories were required to close.
Through January and into February, the lira was trading just shy of LL9,000 to the dollar, but when the government began a gradual easing of lockdown restrictions on Feb. 8, the resumption of commerce across many sectors of the economy increased demand for dollar banknotes to fund imports.
Since late 2019, Lebanese bank account holders, both commercial and private, have been largely unable to withdraw their dollar deposits. Banks in Lebanon no longer supply depositors with foreign currencies on non-fresh currency deposits — funds placed in bank accounts after April 9, 2020.
Customers who need dollars to pay for imports or goods and services overseas are left with no choice but to withdraw cash from their accounts in lira and head toward exchange shops to acquire dollars at the going parallel market rate.
As a result, the quantity of lira in circulation outside BDL has more than quadrupled since the beginning of summer 2019, bringing the total to over LL34.4 trillion, as per BDL’s latest interim balance sheet.
Lebanon has been without a cabinet for 204 days since Hassan Diab’s government resigned on Aug. 10. President Michel Aoun and Prime Minister-designate Saad Hariri continue to dispute the size and distribution of a cabinet line-up, bringing government formation efforts to a standstill.
Such political instability pushes people to seek to safeguard their personal financial security by hoarding foreign currencies, further diminishing the quantity of dollars available in the market.
At the same time, the lack of trust in the national currency motivates holders of lira to sell their currency before it devalues further, increasing the demand for hard currencies.
On the parallel currency market, the basic law of supply and demand generally applies: when demand increases but supply does not, the price of the commodity — in this case the dollar — rises. Subsequently, the value of the currency being exchanged for those dollars falls.
The deterioration of the national currency has been reflected in the rising prices of goods. Notably, foodstuff prices have risen at alarming rates. Food and non-alcoholic beverage prices soared by up to 402.25 percent in December 2020 compared to December 2019, according to the Central Administration of Statistics.
If subsidies are cut without a plan, experts warn that the lira’s value will take a further — and much more drastic — plunge. Without a social safety net program and without reforms to unlock an International Monetary Fund rescue package for Lebanon, the crisis will aggravate pre-existing vulnerabilities, pushing the Lebanese deeper into poverty.
In response to the lira’s continuing plummet, demonstrators blocked roads in Beirut and around the country Tuesday afternoon, including in Taalabaya and Marjayoun and on the Beirut Airport highway, as well as on the Ring bridge in downtown Beirut that had been a key location in mass protests that kicked off beginning Oct. 17, 2019.