Lebanon sets new exchange rate, dramatically devalues pound

Feb 1, 2023, 4:38 AM | Updated: 4:40 am
FILE - People pass by the Lebanese Central Bank, in Beirut, Lebanon, Monday, Sept. 26, 2022. Three ...

FILE - People pass by the Lebanese Central Bank, in Beirut, Lebanon, Monday, Sept. 26, 2022. Three years into a crippling financial crisis, Lebanon's Central Bank on Wednesday, Feb. 1, 2023 set a new exchange rate that effectively devalued the country's currency by 90%. (AP Photo/Bilal Hussein, File)

(AP Photo/Bilal Hussein, File)

BEIRUT (AP) — Three years into a crippling financial crisis, Lebanon’s Central Bank on Wednesday set a new exchange rate that effectively devalued the country’s currency by 90% but did little to bridge the gap with the soaring black market rate.

The dramatic measure is meant to stabilize the free-falling Lebanese pound and eliminate the multiple exchange rates that currently exist, a key demand of the International Monetary Fund for a bailout package for Lebanon.

The new rate set Wednesday is 15,000 pounds to the dollar — a stark contrast the previous, when the Lebanese pound was pegged at just over 1,500 pounds to the dollar. That rate was implemented in 1997, to encourage investor confidence and to stall hyperinflation after its 15-year civil war.

However, it’s unclear how the new rate will be implemented or reconcile a host of different exchange rates that exist for public sector salaries, fuel prices and different services, including telecommunications.

Many fear it will lead to another surge in inflation and hike prices of food and other essential goods, as authorities have in the past failed to crack down on illicit price hikes.

Also, the new official rate is nowhere near the current black market rate of about 60,000 pounds to the dollar, used for buying and selling most goods, nor the Central Bank’s Sayrafa platform — used for certain financial transactions — with 38,000 for $1. It also will apply to withdrawals from dollar accounts, where customers have been withdrawing some of their trapped savings in the local currency, at an exchange rate far lower than market value.

Lebanon’s initial economic boom in the post-civil-war years was eroded by conflict, political paralysis and corruption, while financial maneuvers that kept the exchange rate artificially low for years eventually collapsed. By late 2019, the country started to spiral into an economic meltdown, an unprecedented economic crisis that plunged over three quarters of the population into poverty.

Lebanon’s Central Bank and Finance Ministry first announced the decision to officially devalue the pound last September.

Currency unification is among a list of reforms the IMF has demanded to finalize a bailout package for Lebanon, tentatively approved in April 2022.

The Finance Ministry already adjusted the customs exchange rate to 15,000 pounds for the dollar in December. Tax collection, balance sheets of the struggling Lebanese banks are now to adjust their exchange rates, and eventually the 2023 state budget.

Since 2019, Lebanon’s cash-strapped banks imposed informal limits on cash withdrawals in dollars, with most depositors losing access to their savings after the country’s banks made risky investments by buying Lebanese treasury bills, despite widespread corruption from its political leadership.

Economist Sami Zoughaib at The Policy Initiative, a Beirut-based think tank, criticized Wednesday’s decision by the Central Bank, and called the measure temporary, in the absence of crucial structural economic reforms.

“We need something that actually reflects the market value, and the only way we can do it is by building a centralized currency market in which people can openly and transparently trade Lebanese pounds and dollars,” Zoughaib said.

“This is not how you unify an exchange rate,” he added.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

(Facebook Photo/City of San Luis, Arizona)...
Associated Press

San Luis authorities receive complaints about 911 calls going across border

Authorities in San Luis say they are receiving more complaints about 911 calls mistakenly going across the border.
4 days ago
(Pexels Photo)...
Associated Press

Daylight saving time begins in most of US this weekend

No time change is observed in Hawaii, most of Arizona, Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam and the Northern Marianas.
12 days ago
Mexican army soldiers prepare a search mission for four U.S. citizens kidnapped by gunmen in Matamo...
Associated Press

How the 4 abducted Americans in Mexico were located

The anonymous tip that led Mexican authorities to a remote shack where four abducted Americans were held described armed men and blindfolds.
12 days ago
Tom Brundy points to a newly built irrigation canal on one of the fields at his farm Tuesday, Feb. ...
Associated Press

Southwest farmers reluctant to idle farmland to save water

There is a growing sense that fallowing will have to be part of the solution to the increasingly desperate drought in the West.
19 days ago
A young bison calf stands in a pond with its herd at Bull Hollow, Okla., on Sept. 27, 2022. The cal...
Associated Press

US aims to restore bison herds to Native American lands after near extinction

U.S. officials will work to restore more large bison herds to Native American lands under a Friday order from Interior Secretary Deb Haaland.
19 days ago
(Photo: OCD & Anxiety Treatment Center)...
Sponsored Content by OCD & Anxiety Treatment Center

Here's what you need to know about OCD and where to find help

It's fair to say that most people know what obsessive-compulsive spectrum disorders generally are, but there's a lot more information than meets the eye about a mental health diagnosis that affects about one in every 100 adults in the United States.

Sponsored Articles

...
Day & Night Air Conditioning, Heating and Plumbing

Company looking for oldest air conditioner and wants to reward homeowner with new one

Does your air conditioner make weird noises or a burning smell when it starts? If so, you may be due for an AC unit replacement.
...
Fiesta Bowl Foundation

Celebrate 50 years of Vrbo Fiesta Bowl Parade magic!

Since its first production in the early 1970s, the Vrbo Fiesta Bowl Parade presented by Lerner & Rowe has been a staple of Valley traditions, bringing family fun and excitement to downtown Phoenix.
...
Day & Night Air Conditioning, Heating and Plumbing

Prep the plumbing in your home just in time for the holidays

With the holidays approaching, it's important to know when your home is in need of heating and plumbing updates before more guests start to come around.
Lebanon sets new exchange rate, dramatically devalues pound