Lebanon is to re-peg its currency for the first time in 25 years, causing its value to fall against the dollar, in an effort to meet the IMF’s demand that the peg be closer to the black market value and helps restore confidence in the financial system.
Lebanon’s currency has been pegged to the US dollar since 1997 at a rate set by the central bank of 1,507 Lebanese pounds to the dollar. The new $15,000 per dollar rate will go into effect Nov. 1, a statement from the Treasury Department said. The exchange rate of the pound on the black market was 38,500 pounds per dollar on Wednesday evening.
Since the onset of the country’s financial collapse in October 2019, the currency has unraveled and lost more than 95 percent of its value. Wednesday’s move is a step towards unifying the country’s various exchange rates, Finance Minister Youssef Khalil told Reuters.
“Today Lebanon has entered a new phase and no longer uses an official exchange of US dollars, which makes no sense. Now we have one that’s useful, that you can use to steer the economy towards a better situation.”
The crisis, described by the World Bank as one of the world’s worst economic crises in the past 150 years, has left the majority of people locked out of their deposits and more than three quarters of the population living in poverty.
The collapse of the currency has had major consequences for depositors, most of whom have been denied access to their dollar savings or have been forced to withdraw money in pounds at punitively low rates.
Although the government reached a draft financing deal with the IMF in April, the deal was conditional on the implementation of divisive economic and political reforms, which have yet to be agreed upon. Uniting exchange rates is one of the key terms of the IMF to unlock the $3 billion loan facility.
After a staff visit to Beirut last week, IMF officials said the Mediterranean nation’s leaders had been “very slow” to implement the changes.
“Despite the urgency of action to address Lebanon’s deep economic and social crisis, progress has been made in implementing the reforms agreed under the [staff level agreement] remains very slow,” the fund said. “In particular, most of the previous actions were not carried out.”
Authorities have resisted finalizing a recovery plan that would help absorb the $72 billion in losses in the financial system.
Government officials are in talks with banks and savers about how the decision will be applied. The aim would be to assist the private sector in an orderly transition to the new exchange rate, a statement from the ministry said.
Many Lebanese blame the financial sector and the central bank for the crisis.
Last month, the World Bank released a report accusing Lebanon’s authorities of: running a giant Ponzi scheme which had caused “unprecedented social and economic pain”.
The report said public finances were being used to seize state resources for political patronage, sparking a “deliberate” depression, adding that a significant portion of the people’s savings had been “misused and misused in the economy.” past 30 years”.