Lebanon plans to launch a digital currency in 2021 to re-establish the nation’s security in the banking sector and transition into a cashless system, Governor Riad Salameh announced on Tuesday.
Salameh urged banks to begin the conversion process, including recapitalization by 20%.
“Lebanon doesn’t have any natural resources and we have to keep the gold because its an asset that could be liquidated in foreign markets if we face an inevitable, fateful crisis,” Salameh was cited saying by the state-run National News Agency.
However, this raises a very important question. How will the central bank introduce a new digital currency if Lebanon’s cash-stripped banks have frozen clients out of their dollar deposits and largely blocked transfers abroad since late last year?
Lebanon has spent the past year struggling to survive as it jumps from one crisis to the next: protests, increasing unemployment, poverty expanding, covid-19, lockdowns, and the disastrous explosion at Beirut’s port on August 4th.
In the background of all of theses issues is a crippling economic situation.
The dollar, which once was traded for 1,500 L.L., is now being traded on the black market for approximately 8,000 L.L., and the number keeps getting higher day by day.
Annual inflation hit 120% in August, while public debt amounts to more than 150% of GDP and is among the highest in the world. Audits of the central bank are still ongoing, as the country’s political elites and bankers have siphoned off their dollars to be sent abroad.
Any real financial reform agenda or plan will first have to eliminate Lebanon’s ingrained corruption that is rooted in the basis of our political elite.
For now, Lebanon will continue to face an uphill battle in attracting foreign currency and building a competitive industry from an already fragile one.