The Economist - USA (2019-10-05)

TheEconomistOctober 5th 2019 41

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I

n the lobbyof a Beirut bank, three cus-

tomers stuff wads of $100 bills into plas-

tic bags. Each note has its serial number re-

corded on a receipt, as local law requires.

One man’s receipt was so long it trailed on

the ground as he left the branch. Surreal as

it seems, this scene would be common—if

banks had dollars to spare. Over the past

few weeks customers have queued for

hours only to learn that they cannot access

their money. One was told that his branch

had less than $2,000 in the vault.

Long an immutable fixture of life, the

dollar has become an obsession. Lebanon’s

currency, the pound, has been pegged at

1,500 to the dollar since 1997. Receipts are

printed in both currencies; shopkeepers

make change with a mix of dollars and

pounds. Officially nothing has changed.

But the panic points to a different reality.

Protests in Beirut on September 29th

heightened the sense of crisis.

Many atms have stopped dispensing

dollars. Banks have quietly lowered with-

drawal limits to $1,000 a day and imposed

arbitrary rules, like banning dollar transac-

tions after 5pm and on weekends, that in

effect bar workers from using their ac-

counts. Businesses are forced into a black

market, where a dollar now fetches 1,600

pounds, and occasionally up to 1,750. The

government insists the situation is under

control. The value of such reassurances is

depreciating almost as fast as the pound.

First to suffer are businesses that need

hard currency. Petrol stations, for example,

sell fuel in pounds but buy it in dollars.

They briefly went on strike on September

26th to protest against a dearth of dollars at

the official rate. Worried drivers queued in

bumper-to-bumper traffic. Wheat millers

have the same problem and have warned of

possible bread shortages.

On September 30th the central bank

promised to provide dollars at the official

rate for firms that import fuel, medicine

and wheat. The guarantee should prevent

any immediate scarcity. It could also leave

Lebanon with, in effect, a two-tier ex-

change rate. A shortage of dollars is not all

bad news, since it should discourage im-

ports and trim a current-account deficit

that was 25% of gdplast year. But it will be

painful for a country that relies so much on

imported goods.

Such a decision is well beyond the man-

date of most central bankers. Not Riad Sa-

lamé, who has run the Banque du Liban

(bdl) since 1993. Admirers praise him for

keeping the currency stable through years

of political chaos. The bdllooks well-capi-

talised, with $37bn in foreign reserves at

the end of July. It should have no trouble

financing essential imports, which run

between $4bn and $5bn a year.

Yet the bank’s assets are in fact dwarfed

by its liabilities, say former bank officials.

To preserve the currency peg it borrows

dollars from commercial banks at above-

market rates. For a few years this was a via-

ble arrangement. Banks, many controlled

by politicians and their relatives, made

healthy profits and the bdlhad a supply of

Lebanon’s economy

Falling apart

BEIRUT AND CAIRO

A long-feared currency crisis has begun to bite. Worse is still to come

Less bucks for the bank

Source: BLOMINVEST Bank *All currencies

Lebanon, commercial banks, $bn

2011 12 13 14 15 16 17 18 19

0

50

100

150

200

Customer deposits*

Deposits with the central bank*

Middle East & Africa

42 RoadstoruininIraq

43 Bibimakeshiscase

43 Angolanoilindecline

44 Ethiopia’s Somali region

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