Lebanon's currency continues to fall

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Lebanon's currency continues to fall

BEIRUT: Lebanon weakened its official exchange rate for the first time in 25 years on Wednesday February 1 but still leaves the local currency well below its market value, as it was falling 90 per cent for the first time in 25 years.

The pound has crashed since a financial meltdown in Lebanon in the past decade after decades of corruption, profligate spending and mismanagement by the ruling elite in Lebanon, which has left the crisis worse despite poverty.

The new official rate was dropped to 15,000 pounds per dollar, a new official rate of 1,507 was scrapped by the central bank. The currency was for decades before the collapse, at 5 pounds at which it was pegged.

Market participants said the pound was changing hands on Wednesday at around 60,000 per dollar on the parallel market where most trades take place.

The adoption of the new official exchange rate is a step towards unifying an array of rates that have emerged during the crisis, according to Lebanese officials.

Unifying multiple exchange rates is one of several steps taken by the International Monetary Fund for Lebanon to get a $3 billion aid package that would help it emerge from the meltdown.

The IMF said last year progress in implementing reforms remained very slow, with the bulk yet to be carried out despite the gravity of a crisis marking Lebanon's most destabilizing phase since the 1975-90 civil war.

Depositors have been unable to withdraw hard currency since 2019 because of the new rate on limited withdrawals in local currency from US dollar accounts.

It is due to be applied to customs duties in the country that depends heavily on imports.

Riad Salameh, the governor of the central bank, told Reuters on Tuesday that the change would lead to a decrease in the equity of banks.

In the absence of reforms to plug a US $70 billion hole in the financial system, depositors shouldered the burden of the collapse as they were forced to withdraw in pounds at a heavy loss or frozen out of their hard currency savings.

Withdrawals in Lebanese pounds from hard currency accounts at the new official rate will still suffer a de facto haircut of 75 per cent based on Wednesday's market rate.

Toufic Gaspard, an economist who has worked as an adviser to the IMF and to the Lebanese finance minister, said the move was not a major development in the larger picture.

For the last 3 -- 1 2 years since the biggest banking collapse in modern history, nothing has been done. He said that not a single significant measure has been taken by the authorities in the political, monetary and fiscal domains.

They are telling the poor depositors that they will get a little bit more but then this is eaten up by inflation and taxes. Nasser Saidi, a former economy minister and central bank vice governor, said in a note that the move was a continuation of a failed exchange rate pegging fixing policy that has caused the biggest financial crisis in history.