As he was leaving the Serail in a meeting with the Prime Minister, the Finance Minister, and the Banking Association, Central Bank Governor Riad Salameh was asked by MTV about whether or not some of Lebanon’s $15 billion gold reserves will be sold in order to pay off Lebanon’s Eurobonds.
In response, Salameh said that the decision that the country will take on the Eurobonds, which are due on March 9th, will not include the option of selling the gold reserves.
However, he added that the decision was not his to make.
The reason why Salameh might possibly be opposed to selling the gold reserves is that they constitute the sole guarantee for the stability of the local currency to the dollar.
Selling the gold reserves can risk devaluing the Lebanese pound, which would ruin the dollar peg that Salameh helped engineered during Rafic al-Hariri’s term as Prime Minister.
However, former deputy governor of the Central Bank Ghassan Ayyash thinks that the gold reserves wouldn’t actually be sufficient in guaranteeing the peg.
He said to Ashraq al-Awsat: “This was true when the size of gold was proportional to the size of the monetary mass and the existing GDP, and when the global monetary system was based on gold coverage of currencies.”
He explained: “As the size of the monetary mass has swelled and the coverage in gold has become insufficient, there is no doubt that the gold reserve is no longer a guarantee for the currency peg.”
Although Salameh says that the decision on how the Eurobonds will be paid is not up to him, he is certain that the gold reserves won’t be touched.
This is strange because selling the gold reserves was an idea suggested when Lebanon’s officials began setting up plans with the International Monetary Fund to reschedule the debt and restart the economy.
Why would Salameh say that the gold reserves won’t be touched when the government is considering selling them to pay off the country’s debt?