Sayrafa online platform and selling on short weaken Lebanese pound, Banking Secrecy lifted on Banks Chairmen

It seems that the manipulation of the lira comes through large fake operations that take place in the market, the most important of which is on an exchange platform and between the money changers themselves and between them and the Banque du Liban.

Unconformed reports said also that bankers have resorted to vast operations on the Central bank platform Sayrafa The “LBCI” channel broadcasted a report, in which it indicated that the situation between the Banque du Liban and some banks is heading towards a state of confrontation due to violations that appear to have been committed by some bank managersor managers, by exploiting banking operations to achieve large illegal profits. Based on the complaint submitted by lawyers in the legal department of the People’s Assembly that wants to reform the system against Lebanese banks and registered with the Appeal Public Prosecution in Habel Lebanon No. 705/2021, and based on the request submitted by the aforementioned lawyers on 12/1/2023, Judge Ghada Aoun issued a decision The decree mandated the banks of Societe Generale, bank of Beirut, AudiBank, Mediterranee, Banque Saradar, Lebanon and Gulf, and Creditbank, to lift banking secrecy from the accounts of former and current chairmen, members of boards of directors, executive directors, and auditors in these banks, as of 1/1/2016.Between December 28 and January 9, and within only six working days, the volume of the exchange platform’s operations exceeded $1.27 billion, or an average of $212 million per day. Noting that the volume of the platform's operations during the day of January 3 alone amounted to 310 million dollars, while during the day of January 5th , it amounted to about 305 million dollars.

As for the rise in speculation and demand, the rise in the dollar can only be done in two cases. The first, buying for the account of a very strong party capable of paying the pounds regardless of their value, and here is what is meant by the Bank of Lebanon, which requests large sums on a daily basis, through well-known financial companies, and well-known, and sometimes unknown, money changers, which created problems between the cashiers. The second is the purchase for the account of parties that export dollars from Lebanon abroad (Syria and Turkey). Here, too, the amount of pounds paid in this case is not important.

Is Sayarafa playing its role??

Of course not. BdL financed a subsidy scheme by providing credit lines for the import of wheat, fuel, medication, and a number of food items, including poultry and dairy, at advantageous exchange rates.4?The scheme depleted, on average, $286 million per month from the foreign reserves and ran until September 2021.5?Since BdL’s books are notoriously opaque, leading to large variations in the estimation of the cost of subsidies, it is estimated to have cost?somewhere within?the wide range of?$6 billion?to?$12 billion.6?Indeed, the reserves, which stood at $31 billion in August 2019, more than halved by the time the import subsidy was lifted in September 2021,?plunging to?$14.6 billion. Not only was the subsidy structure costly, it was also regressive, benefitting affluent households almost four times more than the poorest 50% of the population.7?This is attributed to the universal nature of the subsidy, as wealthier households had the means to consume more expensive imports.

What started off as a platform to monitor and regulate currency exchanges,8 has turned into an arbitrage opportunity for households and businesses, i.e., making “profits” by buying dollar notes at the Sayrafa rate and reselling them at the market rate.

Second, the?BdL-operated?Sayrafa?foreign exchange?platform is providing a de-facto social assistance “program”, reaching full-time public servants as well as the larger public who have access to the country’s broken financial system. What started off as a platform to monitor and regulate currency exchanges,8?has turned into an arbitrage opportunity for households and businesses, i.e., making “profits” by buying dollar notes at the Sayrafa rate and reselling them at?the?market rate.

Since January 2022, BdL significantly expanded Sayrafa, requesting commercial banks to conduct currency exchanges without monthly ceilings.?From the beginning of 2022 until August, the average spread between the Sayrafa rate and the market rate was 12%. This spread fluctuated significantly, from a low of 2% in mid-February and early March reaching a high of 26% one week after the elections in May. This large discrepancy?provided arbitrage opportunities, meaning that people who have access to the platform are able to generate profits by exchanging their Lebanese liras (LBP) at the Sayrafa rate and re-selling their dollars at more advantageous rates in the market. While this served to complement people’s dwindling incomes, it disproportionately benefited those with access to large sums of cash LBP and civil servants who are paid their full salary at the Sayrafa rate, hence becoming a tool of selective support.

Based on the trading volumes of Sayrafa and the daily spread between both exchange rates, the potential value of arbitrage from BdL’s Sayrafa, as estimated by The Policy Initiative team, reached $885 million?between January and August 2022.9?Strikingly, the loss incurred by the central bank to sustain Sayrafa in this period is equal to around 3.5 times the World Bank loan for the Emergency Social Safety Net program.

The alternative to this central bank-led response is very well established.?A fraction of the?amount depleted from the foreign reserves since August 2019, which hovers around $20 billion, could have funded the ILO-UNICEF proposed social protection floor, estimated to cost around $500 million annually.10?These funds?could?have provided social grants that protect against lifecycle-vulnerabilities, including childhood, disability, and old-age.The Central Bank’s interventions to support the platform’s operations cost it a loss of approximately $2.57 billion from its reserves. During this period, the difference between the platform price and the actual market price ranged between 4,000 and 12,000 pounds per dollar.

Currently, the average daily exchange rate announced for platform operations is around 38,000 pounds, while the parallel market exchange rate is around 47,600 pounds. In this sense, anyone can make an immediate profit of 25%, by simply buying dollars at the platform price through a bank, and then selling them in the parallel market.

Where is the Money Going??

In this context, the financial sources following through Al-Modon reveal that the Central Bank has not lost control of the market. A large part of the demand for the dollar is carried out directly by the bank. Noting that one of the well-known people on the black market asked last week, using the “disclosure” method, i.e. deferred purchase, for $7 million, which he wants after two days, at an exchange rate that is two hundred pounds higher than the market. Knowing that the exchange rate was moving, which led to an increase in the price of the dollar in record time by 500 Lebanese pounds. The sources stress that this person is linked to the Central Bank, and sells dollars to him, and no one can buy in the “disclosure” format such very large sums, unless he has “confirmed” the sale process in advance, and to a party capable of fulfilling the promise of purchase. In this case, it was the central bank. So it is wrong to say that the bank has lost control of the black market. He was and still is the strongest player in it.

In this context, audio recordings of well-known money changers were circulating, insulting each other and vowing to respond, since some of the huge losses that occurred recently in this market were targeting specific people. When one of them asks for a sum of one million dollars that is deferred until after a week, and all indications speak of a decrease in the exchange rate, his opponents seek the dollar at prices higher than the market price, so they raise its price, and the losses that the loser usually “locks” (pay) from By offering his property for sale to groups dedicated to this, to be bought, perhaps, by the same people who directed it

The blow to him, burned prices.

in conclusion

1- The Banque du Liban did not aim to reduce the exchange rate in its recent circular about selling dollars through an exchange, to say that the bank failed in its mission and lost control of the market, because it is able, in one hour, to stop its demand for dollars, so that the demand in the market decreases to half and perhaps more, what The exchange rate is devaluing at an insane rate.

2- The exchange has become a platform for manipulating the lira

As for the reason for the banking halt, a banking source attributes it to the randomness of the decisions issued by the Central Bank, and the accompanying fraud and collusion between some banks, currency dealers and money changers, to exploit the Central Bank’s dollars in speculative operations. The Central Bank seized suspicious financial operations that took place through a banking platform, and large sums of dollars were spent, according to the source.

In the first week of this year, the Banque du Liban wasted more than a billion dollars within a few days through an exchange platform, when it opened the ceilings for withdrawals to citizens. So, a large number of merchants, speculators, money changers, and perhaps smugglers benefited from exchange dollars - based on the exchange rate of 38,000 pounds per dollar. No one actually knows the nature of the financial paths through which those dollars passed.

The Central Bank wasted more than a billion dollars to announce its inability later to continue the policy of opening the ceilings, and to reduce banking operations to 100 million pounds and limit them to individuals only. He was also unable to proceed with this mechanism, so he returned and suspended the exchange business again, and restricted dealing with it to the very low ceilings that prevailed a few weeks ago.

The outcome of that adventure was that the Central Bank raised the exchange rate of a dollar from 31,000 pounds to 38,000 pounds in order to formally and temporarily reduce the price of the black market dollar, and the latter rose again, exceeding 47,000 pounds.