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Talking about setting the currency as a “fallen target” ignores, intentionally or ignorantly, the fact that any currency is a tool that can be a tax tool, or can be used as an economic incentive within a clear plan and economic goals and social. What raises questions, however, is that the issue may not just be Salameh’s disregard for scientifically proven facts, but rather it may simply be a “hoax” or “collusion” with the lyre and the depositors. In a press conference held on November 11, 2019, Salameh said words that lost their value after weeks: “The objective of the Central Bank of Lebanon is to maintain confidence in the Lebanese pound, and this is fundamental. The lira is a tool to ensure economic growth and social stability, inflation rates rise and purchasing power decreases in the event of a fall in the lira. Success lies in maintaining the stability of the Lebanese pound … We are facing a new stage and we will maintain stability in the exchange rate of the pound.
This was the vision of the monetary victory maker. It wasn’t long before he became an illusionist. All of Salameh’s options and his steps from then on were aimed at destroying the pound. This goal was full of clear options. The escape from inflation and exchange rates. With this escape, it was bet that Salameh had argued with more than one party.
On the one hand, Salameh bet that the exchange rate would reduce imports. Consequently, part of the balance of payments crisis will be addressed (the current account is part of the balance of payments that represents the net money that enters Lebanon and those that leave it, whether in the form of goods, services or whatever Another way). In other words, price inflation will reduce the purchasing power of rents, which Salameh promised to maintain on November 11, 2019, and thus reduce imports, which will cause a decrease in the bleeding rate of the currencies that finance imports.
On the other hand, the bet was that the inflation caused by the depreciation of the lira against the dollar would force the Bank of Lebanon to inject more paper money into the market to pay for dollar deposits in banks after these dollars actually evaporated. (consumed). Consequently, the lira becomes a fiscal tool to redistribute wealth in order to transfer a portion of deposit accounts to fund loan accounts. This was the hardest deduction Salama made, or let the market make it, while in his press conference he stated that “protecting depositors and deposits is a final issue. We have taken what is required of the procedures so that there are no losses in charge of the depositors, and there will be no deduction (deduction), there is no legal validity for that. Therefore, the deduction for price inflation, the failure of the exchange rate and its conversion to different prices in a market, is not a deduction. This is Salama’s concept of the exchange rate concept, and it is a concept similar to that of “Hercat”, whether you accept this name or refuse to do so, this is reality.
But that is not the worst; Despite the bets, the goals set were not achieved. Today, we have largely gone from the drop in imports ($ 6.2 billion at the end of August) to less than half of what it was in the corresponding period last year, but the balance of payments deficit continued, specifically in the capital account. At the end of August, the annual cumulative deficit was around $ 7.5 billion, including a deficit of $ 3 billion in July and $ 1.96 billion in August. The deficit expresses the outflow of dollars from Lebanon, and no matter how many stories about this deficit, it is still a reality. Where are you going? Who benefits from it? What is the volume of “fresh” transfers from them? These are the questions that Salameh does not raise.
This reality increases the authority’s ability to hold Salameh accountable. Have you yet been asked about your role in creating numerous exchange rates in the Lebanese economy? Or about the measures taken to protect the lira and depositors? With what objectives did you carry out these operations? In late 2019, Lebanon’s economic model shifted from a fixed exchange rate against the dollar to an exchange rate with many different wings, most of which are mobile. There is an exchange rate for checks, an exchange rate for the paper dollar or transferred from external accounts, or what has been called “fresh”, and an exchange rate in exchange houses that later developed to become in the fixed price of the platform, which is equivalent to 2.5 times the regular price fixed since 1997, and there is an exchange rate for the payment of the debt that was up to 1520 pounds against one dollar, then the banks began to charge a unfair commission of up to 20%, and there is also a price for converting the lira deposit into dollar equal to the previous fixed exchange rate plus a commission as well … Instead of the fixed exchange rate, we have moving exchange rates, most of which are linked to price fluctuations The parallel market, or by decision of the Banque du Liban.
These developments occurred in stages, the most prominent of which was the exposure of the Bank of Lebanon ‘s intervention as a seller and buyer of the dollar in cash (the scandal of the Monetary Operations Directorate at the Banque du Liban), although Salameh claimed in a press conference on November 11 that “the Bank of Lebanon does not deal in dollar bills.” Later, he financed the tellers with $ 900,000 “fresh” a day. Despite this, the money changers practice selling by price in the parallel market, and they have networks throughout Lebanon, including virtual networks that value dollars freely and without any complaints from Salama or its central council about these operations.
The possibility of a falling exchange rate results from the continued use of the lira as a tool to transfer wealth from depositors to borrowers.
Perhaps this matter is a clear indication that the suspicion of the “beneficiary” affects Salameh and the Central Council from the exchange rates. They are responsible today for the fact that wages in Lebanon do not cover more than 50% of the value of the household consumption basket, which means that wages are no longer sufficient for food and drink.
Despite this, Salameh practices turning the lira into a fiscal tool for purposes that are not economic, but rather related to extinguishing losses in his budget and also in bank budgets. This tool is the simplest tax tool possible and, in general, it is not clear, but it means two basic things:
– The possibility of a fall in the exchange rate and its deterioration derived from the continued use of the lira as a tool to transfer wealth from depositors to borrowers. This is evidenced in the equation for the price of the check in dollars, which today equates between 2,800 pounds and 3,000 pounds per dollar, while the price of a dollar of paper is worth 7,500 pounds in ATMs and banks. More than $ 10 billion came out of deposits and went to debt relief. The debtor does not necessarily have to be poor, but may be one of the rich who withdrew paper dollars and exchanged them for checks from the depositors’ money and placed them in their accounts to settle debts.
In practice, temporary reversals or fluctuations that affect the exchange rate from time to time are not sustainable, as has been proven over the last year. For example, in October 2019, the price of the dollar on the parallel market reached 1,690 lira, but in April it jumped to 2,850 lira, then reached 4,200 lira at the end of April, and reached 5,400 lira on June 12. Two days later, the price fell to 4,750 lira and then rose again. On July 3, the price reached 9,900 lire, then fell in a week to 7,900 lire. History repeated itself in August and the price dropped from 8,500 lira on August 6 to 7,000 lira on August 11. The sum of these fluctuations caused the International Monetary Fund to use the exchange rate based on 6000 lira in the calculation of the estimated GDP for the year 2020.
The exchange rate takes a big jump and then returns to relatively marginal fluctuations.
The best way to manage the exchange rate is related to the objective that the authorities are supposed to pursue. It is not about a technical prescription, but about managing bankruptcy and using the tools available. This is within a clear objective: what economy? What society? Do we want to promote the site of equity owners? Is there interest in a stable exchange rate?
Currently, neither Salameh, nor anyone in power, has the gall to face these questions and make choices. Everyone wants a part of the exchange rate to be of interest to them. It is the interest you used to get from a fixed and stable exchange rate, and it is an interest that widens the gap between a few rich and many poor in Lebanon. Who dares to face the choice of looking for an alternative model? A year after the outbreak of the crisis, no one in power has dared to offer an alternative approach. Everyone wants to patch their form even if the patch doesn’t last that long. A few months might be enough to smuggle what’s left of your money trapped here.
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