BDL takes more steps towards unifying market rates

Maan Barazy

The Central Bank of Lebanon did not renew the effects of Circular 151, nor did it issue any decision regarding it after its expiration at the end of the year, just a few days ago. It's not coincidental that the Central Bank of Lebanon intentionally left the issue of pricing the bank dollar without specification in the absence of any regulating circular. So, what is the alternative today to Circular 151? At what exchange rate will financial withdrawals from banks be conducted?

The Central Bank of Lebanon does not have any intention in the foreseeable future to issue a new directive regarding the exchange rate of the dollar at banks, according to an informed banking source.

Exchange rate of 8,000 LBP

BDL issued Intermediate Circular 601 on 9/12/2021 that replaces Basic Decision number 13221 of Circular 151, issued on 21/4/2021, with Intermediate Decision Number 13377, in relation to the “exceptional measures concerning cash withdrawals from foreign currency bank accounts”. The new Decision asks banks to honor customers’ withdrawals from their USD deposits at the exchange rate of 8,000 LBP instead of the 3,900 LBP that was set previously. It also limits withdrawals to 3,000 USD each month. The new Decision is effective immediately and has a duration that ends on 30/6/2022.

BDL has resisted in the past to amend upwards the LBP rate for USD deposit withdrawals on the assumption that it will lead to higher LBP liquidity and in turn cause further depreciations in the exchange rate and more rapid inflation. Two possible explanations could be put forward for BDL’s new Decision: first, to ease people’s liquidity constraints for transactions and purchasing purposes; second, to bring the multiple exchange rates closer together so as to ultimately unify them per an IMF reform program.

BDL issued on 5 July 2023 two intermediate Circulars. Intermediate Circular 673 extends Basic Circular 151 to 31/12/2023. The circular permits clients to exchange every month their USD deposits at commercial banks for a maximum amount of 1,600 USD at the official exchange rate of 15,000 LBP. BDL has kept the amount and the rate intact so as not to increase the money supply and avoid the adverse effects of that on the market exchange rate.

Circular 674

In addition, Intermediate Circular 674 amends Basic Circular 158. It eliminated the $400 that clients used to withdraw annually every month from their “special designated accounts” of USD at the official exchange rate of 15,000. The intention of this amendment is to reduce the haircut that clients are subject to, given that the market exchange rate is currently at close to 91,000 LBP. However, the Circular kept the $400 in monthly cash that clients could get from their special USD designated accounts that were opened before 1/7/2023 till the amounts are exhausted for an annual total of maximum $4,800. But for money transferred to these accounts after 1/7/2023, the eligible monthly cash withdrawal is reduced to $300 for an annual total of maximum $3,600.

Moreover, for Intermediate Circular 674, BDL stipulated that banks can use the increase in their external liquidity by 3% that was set into effect in Basic Circular 154 to pay for these cash USD withdrawals, on the condition that the paid amounts are to be replenished by banks by 31/12/2024. Also, the circular is effective for a year, subject to extension or change, starting from 1/7/2023.

?The Central Bank has taken steps within the framework of unifying exchange rates as a first stage, raising the official exchange rate on the SAYRAFA platform from 85,500 Lebanese pounds to 89,500 Lebanese pounds, thereby matching the dollar's exchange rate in the black market. Consequently, Lebanon's Central Bank has started to bring exchange rates closer together amidst delays in launching the Bloomberg platform. The launch of this platform will not occur until the accompanying laws facilitating its operations aimed at regulating market dynamics and improving its response to unifying the dollar exchange rates and transactions are completed. The Bloomberg platform is an electronic platform that determines exchange rates set up through international providers. The Central Bank of Lebanon (Banque du Liban or BDL) will soon ask all market players, banks, and monetary exchangers to list themselves on the platform to be able to place exchange rate orders.Sep 11, 2023

As for the specified official exchange rate of 15,000 Lebanese pounds for the dollar, no changes will occur until the government establishes the groundwork for adopting a unified dollar exchange rate or at least adopting the new dollar exchange rate in the general budget. Then, the exchange rate specified in the budget law will be implemented, which is assumed to be aligned with the current official exchange rate on the SAYRAFA platform and later on the Bloomberg platform.

According to the source, Lebanon's Central Bank will not raise the exchange rate or intervene in this matter from now on, especially if the government issues necessary laws, including the general budget law and the Capital Control law, aimed at organizing the mechanism of withdrawals and the law on bank restructuring. Only then, when the process is regularized, will the government renew the new dollar exchange rate to be implemented. Subsequently, the Bloomberg platform will be launched to manage the fluctuating pricing process. The government might decide to set the exchange rate at 89,000 Lebanese pounds or another value. In this case, Lebanon's Central Bank will not intervene in the pricing decision again and will not bear responsibility, leaving the matter to the state

As a result, and regardless of the expiration of Circular 151, depositors continue to bear the weight of their funds at the rate specified at 15,000 Lebanese pounds. Circular 151 was issued on April 21, 2020, when the withdrawal rate was 3,900 pounds per dollar. Its implementation was extended, with the exchange rate eventually reaching 15,000 pounds per dollar in February 2023. Currently, deductions from deposits persist at a rate exceeding 85%, despite the closure of Circular 151.

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