The Banque du Liban denies intention to damage its mandatory foreign exchange reserves

Parallel to the next depletion date of the Central Bank’s foreign exchange reserves, through which it supports the importation of fuels, wheat and medicines, discussions have begun on the possibility of the bank benefiting from the mandatory reserves of currencies from banks so that the support process can continue.
In this context, informed sources confirmed that the idea of ​​benefiting from the mandatory reserve was raised at a meeting that brought together the governor of the Banque du Liban Riad Salameh and various stakeholders, and that it was proposed to reduce the percentage of this reserve from 15 to 12 percent, but Salameh denied the matter, noting that ‘any reduction in the mandatory reserve ratios, if it occurred, would revert to the owners of the deposits in the Banque du Liban who are the owners of the banks, and for no other purpose .
The Banque du Liban can “dispose of the mandatory reserve. The matter does not need a law because it is basically an order imposed by a circular issued by the Banque du Liban that requires all banks to deposit 15 percent of all types of deposits in foreign currency or the so-called deposits of resident banks in dollars, “he explains. The economic expert Walid Abu Suleiman, pointing out that the purpose of the legal reserve is to face the risks to which the banks are exposed.
Abu Suleiman explains that such a measure will naturally have negative repercussions on citizens, since this reserve is automatically part of the depositors’ money, in addition to releasing a percentage of the mandatory reserve it can also lead to more money being smuggled abroad.
The volume of mandatory reserves is estimated at 18 billion dollars, while some refer to its fall to 17 billion due to the fall in the volume of deposits in the sector to 114 billion dollars until last September.
The monthly subsidy bill (fuel, medicine, wheat and food basket) ranges between 600 and 700 million dollars per month.
In the event that it is approved to reduce the mandatory reserve by 3 percent (from 15 to 12 percent) to monitor the subsidy, approximately 3.5 billion dollars of funds deposited by banks in the bank will be released. central, but these funds will not return to the banks, which emphasizes the financial and economic expert. Nassib Ghobril for his refusal, considering that “in the event that the mandatory reserve is released, it must return to the banks and not benefit from it in terms of support.” Ghobril added, in an interview with Asharq Al-Awsat, that after the mandatory reserve money is returned to the banks, if the governor of the Banque du Liban requests that it be deposited with the Central Bank with the aim of using it in matters of subsidies, but the funds must return to the banks if they are released.
Ghobril explains that the mandatory reservation is not to ensure continued support. “The central banks of the world use this reserve to withdraw or inject liquidity to the markets, increasing or reducing its percentage,” indicating that the Banque du Liban is almost the only bank in the world that receives support for basic materials. Since the subsidy must be included in the general budget and is borne by the state treasury.
Ghobril believes that the difficult economic conditions that Lebanon is going through require that responsibility be shared between the bank and the executive authority, but the Central Bank of Lebanon bears only the question of support.
Reducing the mandatory reserve will allow the subsidy to continue for additional months, but it is similar to “escaping forward,” according to Abu Suleiman, since in the end we will reach a dead end once the reserve ratio that will benefit the Central Bank is finalized.
Therefore, Abu Suleiman emphasizes the need to streamline support by reducing his bill, especially since most of this bill does not go to the poorest families or those in need of support.
For his part, Ghobril highlights the need to create a new support mechanism, especially since a large part of the subsidy money goes to merchants, in addition to the smuggling of subsidized materials abroad.