Living in Lebanon is a matter of survival. Not just due to overall conditions but rather because of financial hardship. That latter aspect was exacerbated this week thanks to the country’s central bank.
Making ends meet in Lebanon is virtually impossible for most people. The country’s national currency is almost worthless. Unfortunately, it became 90% less valauble overnight following a new decision by the country’s central bank. As of today, the exchange rate is 15,000 Lebanese pounds per US Dollar. A stark contrast to the previous 1,500 pounds per USD just last week.
When countries devalue their official exchange rate, things do not look good. It is often a sign of an impending default on debts and potential bankruptcy for the entire nation. Although it is the first time Lebanon has done so in 25 years, the signs are worrisome. In addition, it leaves the domestic currency far below its market value, making life even harder for inhabitants.
Most experts saw the devaluation coming, even if not at such a grotesque rate. The Lebanese pound has been in freefall for many years. Whether that is due to officials being terrible at financial management or growing corruption plaguing the country remains a matter for debate. However, Lebanon went through a financial meltdown in 2019 and hasn’t recovered since.
Like other countries with a troubled national currency, Lebanon has a “parallel market”. It is the go-to way for people to exchange between worthless Lebanese pounds and other fiat currencies capable of maintaining value. However, that exchange rate is 60,000 pounds per US Dollar, four times the newly devalued ratio. It confirms the mass exodus from the local currency, yet it’s not a healthy sign for the economy.
In addition, it is very tricky to get out of the Lebanese pound. All domestic banks limit withdrawals in dollars, forcing people to stick with Lebanese pounds. However, most depositors have already lost access to their savings. In addition, the recent devaluation will affect local currency withdrawals from US dollar accounts. Plus, it will apply to customs duties, which may be nefast for the country’s growing imports.
There is a method to the financial madness in Lebanon, though. Country officials seek a $3 billion aid package from the IMF. However, they can only do so once they streamline the exchange rates for the Lebanese pound. Other measures must be put in place to ensure some degree of stability. As such, the Lebanese population will face even tougher times ahead.
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