Last decision of the Banque du Liban, its governor decided to raise the exchange rate of its Sayrafa electronic platform to 15,200 LL / USD this Friday, thus seeming to recognize the successive failure of the exchange rates of 3,900 LL / USD then of 12,000 LL / USD previously used by it but still failing to recognize its failure to unify exchange rates.
As a reminder, this rate allows depositors who accept circular 158 in particular to be able to withdraw USD 400 in cash and USD 400 in Lebanese equivalent at this parity and who thus accept a discount of 25% of their sums in the bank on relatively small amounts.
But this new decision, if it endorses the deterioration of the parity of the Lebanese pound and leads to admit de facto that the official rate of the Lebanese pound against the dollar is obsolete, also leads to an uncontrolled creation in the end of the money supply.
An excess of monetary creation compared to an absence of equivalent wealth creation leads to galloping inflation, which is currently the case. This has been the problem of Lebanon for the past 30 years. It was a rentier economy without effective creation of wealth. The monetary bubble put in place by the Banque du Liban to attract foreign capital finally burst in early 2019.
However, according to Riad Salamé in 2019, the dollar shortage that affected the country of the cedars was only induced by logistical problems of private banks to be able to be able in famous green bills then recognizing all the same, towards the end of that year. , that the local economy was a cash economy, then he even went so far as to accuse depositors of being responsible for the fall of the pound to the black market by storing dollars at home for lack of confidence in the financial system, also demonstrating a loss of confidence in himself, but what he does not seem until today not to accept.
Exit then the monetary system and its advantages. And yet, the Banque du Liban persists in saving, not the deposits but the banks, allowing them to pass the losses of this sector on to the depositors and not to those who were responsible for them, namely the leaders of the banks and beyond. even, the supervisory authorities, that is to say itself.
In doing so, it also puts Lebanese banks even more in difficulty. Indeed, these had placed the dollars of their customers with the Bank of Lebanon which itself gave them Lebanese pounds with higher interest rates. Thus, the banks are debtors of dollars to their customers and only have Lebanese pounds, the price of which is collapsing, further aggravating the losses in this sector.
Paradoxically, if M1 increases very significantly, this is not the case with M2 or M3, which even decreased during the same period. This indicates that indeed, the Lebanese economy has become a cash economy and that large sums have come out of the banking and monetary system.
Creating inflation to stimulate an economy and therefore create wealth would not be a problem in itself. But creating inflation without economic activity further aggravates the crisis.
The response of the Banque du Liban was therefore that of the printing press, consequently to create money ex-nihilo, without corresponding creation of wealth. A bit like the large fiduciary profits that the Governor of the Banque du Liban declared by printing money which in fact was not guaranteed by collateral, which consequently created inflation.
The monetary policy of the Banque du Liban is at the origin of 70% of the current crisis, a responsibility which is all the more serious since in order to continue to artificially attract foreign funds, the central bank has artificially maintained a stable value of an overvalued pound.
This responsibility is all the more serious as it has in no way responded to its primary responsibility, namely the interests of the depositor.
It itself also bears the primary responsibility for the deterioration of the parity of the Lebanese pound against the dollar by its policy of increasing the money supply at a record rate without any control in an attempt to compensate for the absence of foreign currencies and the freezing. capital within local banks following the establishment by them, unilaterally, of capital controls.
If today it is advisable to look for responsibilities in the face of the deterioration in the value of the Lebanese pound against the dollar – 92% compared to its price 2 years ago – and the inflation which led to the loss of power while the majority of the population now suffers from not being able to eat their fill, it is above all at the level of the Banque du Liban that we now have to look at.