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A few days ago, news emerged about a series of measures taken by the Central Bank and commercial banks, all of which are framed in a context: absorbing and withdrawing the cash liquidity available in Lebanese pounds from the market. The clear objective so far of all these measures is to reduce the supply of this liquidity in local currency, to reduce the demand for the US dollar. Consequently, limit the fall in the exchange rate and, in fact, initiate a temporary upward path that raises the value of the lira against the dollar to some extent. It is also believed that the depletion of the pound’s liquidity and the beginning of the increase in the value of the pound against the dollar will push the Lebanese to draw on their hard currency liquidity in homes to sell. Consequently, causing an increase in the value of the lira against the dollar.
The truth, so far, is that these measures have begun to affect the exchange rate, specifically through the improvement that the Lebanese have experienced in recent days in the exchange rate of the lira. However, the main concern today lies in the expected repercussions of these steps, either in terms of the effect of the deliberate and sudden drying of liquidity on the movement of the economy, or the possibility of a liquidity crisis in the pound similar to that of the liquidity crisis in the dollar.
In this case, the Central Bank will have pressed to alleviate the exchange crisis, which was led by its policies that, since last October, have been to print cash in pounds to amortize deposits in local currency. However, dealing with the exchange rate crisis will be at the expense of manufacturing other crises, no less important, that will affect the Lebanese and their livelihoods.
Withdrawal of lira from the market
During the last period, the Central Bank continued to support the importation of vital commodities such as fuel, medicines and wheat, when the Bank of Lebanon secured 85% of the value of the dollars required to import these materials, while the importing companies paid the Banque du Liban the value of these dollars in Lebanese pounds, according to the old official exchange rate, that is. 1507.5 pounds for one dollar. In the same way, the Central Bank used to support the importation of items from the subsidized food basket, but according to the price of the platform, which today is 3,900 pounds per dollar. In practice, importing companies, most of them large importers and wholesalers, used to pay the price of the subsidized dollars to the banks by checks or transfers in pounds, while the banks in turn transferred these amounts to the Banque du Liban on behalf of companies.
As for today’s novelty, it is the issuance of Intermediate Circular No. 573 by Banque du Liban, which stipulated that these amounts owed by importing companies had to be paid in Lebanese pounds using cash papers, not by bank checks or transfers as before. As for the result of this decision, it will be the absorption of a huge block of liquidity in the Lebanese pound from the markets and the reduction of the levels of money supply in the Lebanese pound.
To understand the enormity of the money supply we are talking about here, it is enough to mention that the Banque du Liban provided support during the first half of this year for approximately $ 2.13 billion from Lebanese imports of wheat, fuel and medicines, according to the official exchange rate of 1507.5, an average of $ 355 million per month. As for the monthly average of the value of food products that are now subsidized by the Central Bank of Lebanon according to the price of the platform, that is, 3,900 pounds per dollar, it exceeded 190 million dollars.
Legalization of bank liquidity
A few days ago, most Lebanese banks began to make decisions in the framework of rationing their available liquidity in Lebanese pounds. The first of these decisions was to lower the caps on Lebanese pound withdrawals at ATMs, while some banks imposed new restrictions that did not exist in the first place, such as setting a maximum limit on the amount of cash that can be withdrawn per week. , in addition to the monthly or daily cap. On the other hand, most banks began to reduce the caps for cash withdrawals in Lebanese pounds within the same branches, in some cases this cap reached only 500 thousand pounds per day. On the other hand, it was noteworthy that these decisions coincided with new measures, such as the reduction of the ceiling of the process of withdrawal of deposits in dollars in Lebanese pounds, according to Circular BDL No. 151, which also falls into the category of austerity in use of available liquidity in Lebanese pounds.
Banking sources indicated to Al-Modon that these decisions generally reflect the rationing of the BDL of the volume of liquidity it delivers to the banks, taking into account that the Central Bank does not interfere with the banks regarding the withdrawal ceilings they impose in branches, at ATMs, or even according to the circular. 151. However, it is sufficient to determine the value of the liquidity delivered to the banks, which must set these ceilings based on the size of the liquidity they have. In practice, according to the same sources, it seems that the rationing of the liquidity that pumps the banks by the Central Bank is in line with its new approach, of surrounding and limiting the monetary mass of lira in the markets, and an attempt to gradually reduce its size.
Liquidity problems
Sudden new bank procedures caused many problems, especially for merchants, who were among emerging banking procedures limiting withdrawal of cash pound liquidity, and the requirement that wholesalers charge the price of goods in cash, after the Banque du Liban imposed the payment of the price of subsidized and imported goods in cash. In short, checks and remittances have become useless, especially for traders of food, fuel, wheat and medicine. This imposed a different scenario financially. The first result of these tangible changes for citizens was the reluctance of many businesses to accept credit cards as a payment method, after withdrawing the liquidity resulting from these operations became a new challenge, given the quality of the new restrictions. bank to withdrawals in LBP. As for the new fear, it has turned into a suffocating liquidity crisis in the lira, in the way that the dollar liquidity crisis occurred, and a difference between the value of liquidity in banks in pounds and the value of cash liquidity in pounds, in the same way that today the value of the cash dollar differs from the value of the bank dollar, with What this means in terms of the development of the LBP check market, just as today there is a market of checks in US dollars.
On the other hand, many economists warn of these kinds of sudden and swift monetary measures, since this kind of sudden withdrawal of liquidity causes further atrophy and stagnation in the markets. The policy of rapidly increasing money supply in the lira over the last period, as a result of the printing of cash to finance public spending and withdrawals of funds from deposits transferred to the lira, led to a record drop in the rate. of change of the lira. As for the policy of absorbing a large amount of money supply in this way today, and if it leads to getting rid of part of the increase in the size of the money supply in pounds, it will lead to disastrous and deflationary results at the market and trade level, in addition to the negative results resulting from the blockage of liquidity in pounds in the banks. . As for the best solution, according to experts, was to freeze the increase in the money supply and resort to softer and less radical measures, such as absorbing less liquidity, gradually and with other types of operations.
In all cases, between the printing of cash to pay for deposits and its withdrawal from the market to control the exchange rate, today it is true that confusion and quick reactions have become the main feature of all forms of financial procedures. and monetary. In practice, it can be said that all these measures are random, since they are not framed within the framework of an integrated and focused plan in the longer term, in order to really push the country towards the exit from the current financial collapse. Therefore, the Lebanese are not expected to reap as a result of these new measures only more negative repercussions, as long as a new round of treatments and mixed reactions follows, as if it were a vicious financial spiral.
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