This Is How Gold Reserves Might Help Alleviate Lebanon’s Crisis

Expert Says Gold Reserves Can Help Alleviate Lebanon's Crisis
Reuters | The New York Times/Diego Ibarra Sanchez

Instead of selling its large gold reserves, Lebanon should use them to borrow money from international markets, experts say.

To sell or not to sell Lebanon’s gold reserves has been a significant debate on the economic scene since before Lebanon defaulted on its debts earlier this year.

Before the economic crisis reached its unprecedented low, the option of liquifying at least part of the country’s gold, which is today worth around $16 billion, to repay debts was at some point a less-favorable option on the government’s table.

Today, being among the top countries in terms of gold reserves, Lebanon could make use of its 286.6 tons of gold to restructure the economy and prevent further collapse, especially considering that its currency is no longer directly pegged to gold.

It is, in fact, pegged to the U.S. dollar, as it has been for decades. However, despite the arguments favoring it, many experts stress that Lebanon’s gold is an untouchable asset, even in extreme situations like the present one.

Some economists have repeatedly argued that selling part of this gold could help rebalance the supply and demand of foreign currency by reinforcing the central bank’s cash reserve.

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But the more optimal option would be to encourage authorities to take an overdraft against part of the gold reserves for around 6 billion dollars to be injected in the economy through banks, Lebanese Economist Nassib Ghobril recently told Xinhua.

This move, Ghobril believes, would provide liquidity and relative monetary stability, if temporarily, until Lebanon reaches an effective agreement with the International Monetary Fund and unlocks its financial aid.

Additionally, it would help put an end to the parasitic black market, which has been significantly exacerbating the financial crisis.

With all that said, though, taking into consideration everything that has been observed since October 2019, especially the somewhat embarrassing Lebanon-IMF talks, a necessary question poses itself.

Considering that the current crisis is mostly the result of many years of corruption and failed policies, the question is: What guarantees that the gold reserves would be used for an effective, genuinely reformative strategy by the ruling class?

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