Where is the dollar heading in the next few days?

Eva Abi Haider –

For the dollar to rise against the pound, the central bank is expected to lift subsidies on fuels, wheat, and medicines. However, the start of the dollar movement about two weeks ago in an uptrend heralds the worst, especially since the support is still in place, then what will bring us in the coming weeks with the lifting of support. ? Are there caps on the dollar?

A study prepared by Omar Tammo, a specialist in banking and investment operations, based on figures issued by the Banque du Liban, revealed that the Central Bank pumped 13,180 billion and 140 million pounds from the beginning of the year to the beginning of the current month October, which constitutes an increase of the lira by 125%. The volume of funds circulating outside the Bank of Lebanon (that is, printed by the Central Bank) until the beginning of October 2020 was around 23,700 billion pounds, while the mass of cash in circulation in the lira a Early 2019 was around £ 5.86bn, an increase of around 300%, and this explains how the impression of the pound and its pumping into the market negatively affects the exchange rate.

In the context, Tammo explained to Al-Gomhoria that the Central Bank prints pounds and injects them into the market, while the monetary mass of the dollar remains the same and has not been equaled by the entry of new dollars into Lebanon equivalent to the growing demand for this strong currency, and this explains the continued deterioration of the exchange rate. The Lebanese pound. The lira, which is printed by the Central Bank, has no foreign currency or gold in exchange to protect it and preserve its value.

He continued: The pumping of the lira in these quantities in a country that depends mainly on imports negatively affects its value, so the higher its quantity in the market, the lower its value. The scenario is similar to a basket full of Lebanese pounds, which today is balanced by a single food item, whereas in the past it was balanced by a complete consumer basket.

Tamo explained that there are two main reasons behind the increase in the money supply in the market, and they are:

– Our economy has become a cash economy and the constant need to negotiate in cash, attributing it to several reasons, among which it stands out: the fall of confidence in Lebanese banks, which led depositors to withdraw their money from banks in cash for fear of losing it, circulars from the Bank of Lebanon, which allowed to withdraw dollars at the price of 3900 pounds. Which means that instead of $ 100 which equals 150,000, it is worth 390,000 Syrian pounds, which means that more banknotes need to be printed to cover this difference to fund withdrawals.

– Calculating the dollar during cash withdrawals at 3900 pounds, while 1500 pounds is calculated when paying by credit card, which constitutes a loss for the depositor. Therefore, even if the depositor prefers to use the card, he is now obliged to exchange it for cash. Similarly, in the past, merchants used to pay the price of goods for the purpose of importing them with a bank card, but today they are forced to obtain cash from banks to take to the ATM and buy dollars.

The rise of the dollar before the support?

What about your explanation of the rise in the price of the dollar against the pound in the parallel market in the recent period, from around 7,200 pounds to 8,600 pounds, while the dollar was expected to begin its uptrend after the central bank will raise support? Tamo says: Confidence in the currency plays a fundamental role in the exchange rate. The Lebanese had hopes of the imminent formation of the government with external support and foreign aid in foreign currency and the improvement of the economic situation, but the formation faltered despite the fact that foreign interventions had a negative impact on the exchange rate, in addition to everything that circulates about the intention of the Central Bank to increase subsidies to basic products. The exchange rate will not wait until the day the subsidy is increased. In this negative environment, everyone began to protect themselves from the worst, since citizens will not wait for support to rise to buy dollars, and this is their right, since they see the dollar as a refuge or salvation in the next bad stage, especially since all the banking, financial, economic and political signals are negative, in addition to the continuous pumping of the pound to the market. .

Two ways: failure or improvement

In the expectations for the next stage, there are two paths: the first is bad, which accelerates the collapse, and the second is positive, which can freeze the situation before it improves, so what are the factors that could play a role impeller in one of these two directions?

Tamo says: There is no doubt that eliminating subsidies without any bailout plan will accelerate the collapse because it will push all traders to go to the parallel market to buy dollars, which will increase the demand in a frightening way, and then increase the pressure on the value of the Lebanese currency, as there is no ceiling for the rise of the dollar.

On the other hand, the improvement in the price of the lira against the dollar first requires forming a government as soon as possible, whose top priority is reform and turning the economic wheel. This step improves the psyche of the Lebanese and freezes the rise in the price of the dollar against the pound, and if this positive trend is completed with the approval by the International Monetary Fund of a rescue plan that will inject new dollars into the market, in addition to go ahead with Sidr’s reforms which are also expected to inject foreign exchange into the market and investments thereby providing You with job opportunities … All these positive factors will lead to an improvement in the exchange rate. But, to what extent can the exchange rate improve? Tamo says: The Lazar plan fixed the exchange rate at 3,500 pounds, to go up to 4,000 pounds later, but until now it is not possible to know the value of the currency because we still do not know the size of the economic losses, nor the size of the losses of the Central Bank of Lebanon and the banks, with confirmation that these losses increased after the explosion. Port of Beirut and after the repercussions of the Corona pandemic, as it is not known what exchange rate will be adopted, that is, if the currency will be fixed or will be left within a mobile range.