Why Did The Lebanese Central Bank Just Print 9 Tonnes of Cash? - The961

Why Did The Lebanese Central Bank Just Print 9 Tonnes of Cash?

$1 may be worth 3,000 LBP very soon. The true financial crisis has only yet to be born.

"There's no need to worry" was the message that Riad Salameh, the governor of Lebanon's central bank Banque Du Liban, famously delivered to the Lebanese people when hints that Lebanon was heading into a financial crisis became too obvious not to address.

Salameh meant to reassure the Lebanese traders and citizens, who were beginning to feel the danger lurking around their businesses as the value of one US dollar became equivalent to that of 1,800 Lebanese pounds in the black market, that all was fine and the Lira healthy as ever.

A little less than three months later, today, a single dollar bill is equal to more than 2,000 LBP in the market, and the latest clues and analysis reports predict a continued decline in that value, which will expectedly reach up to 3,000 LBP soon.

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Moreover, a few days ago, a reporter asked the same governor of the central bank about his personal prediction regarding the current financial situation and the state of the Lebanese pound, and his infamous response was simply: "No one knows."

Not an answer anyone would want to hear coming from the one man who's supposed to know the most in the country's financial scene. So now that the Lebanese currency is officially in danger, what is the central bank doing about it?

Printing more Lebanese currency; 13 trillion Lebanese pounds in 50 and 100 thousand bills to be precise. In weight, that is equal to 9 tonnes of paper money.

It might sound like an appealing action: to print more and more cash and let it flow into the Lebanese market. However, printing more money is not the answer to the critical situation, it actually has an even more detrimental effect on the economy and the citizens.

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According to Lebanese Economist Dr. Elie Yachoui, as per the law, the central bank has the right to print the currency in three cases: The first case is when its reserves of gold and foreign currencies increase, which is the opposite of the reality of the situation today.

The second case is when the debt ratios of commercial banks rise, and the third case is when deficits of the public treasury grow and it becomes urgent to cover them.

And since the first case is not applicable, this means that the central bank is not printing money as a result of an increase in gold and foreign currency reserves, but to cover the debts of banks and the treasury.

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And why, you might ask, is that a bad thing?

The expert economist said: "The basis of the printing process was saving the state from bankruptcy, but the solution to the liquidity crisis in the treasury came at the expense of the Lira, and everyone who gets their salary in the local currency, be it in the private or the public sector."

Furthermore, printing more Lebanese pounds when the reserves of foreign currencies (especially the US dollar) are depleting by the day, in turn, means that the value of the pound will continue to drop in the face of these currencies.

As expected, Lebanese people will be the most harmed by this drop because it will directly impact the local market, and prices will soar as a result.

Dr. Yachoui explained, "Most probably, the [exchange rate] will reach 3,000 Liras, and this is a scientific issue, not an issue of astrology or [fortune reading] because the Bank of Lebanon does not have the ability to cover the value of the Lira." 

Via Lebanese Forces

The Lebanese Army has reportedly already transported the 9 tonnes of 50,000 and 100,000 Lira bills from the Beirut Rafic Hariri International Airport to the central bank.

The effect of releasing this large batch of local currency into the market will be extremely negative... In that case, the true financial crisis has only yet to be born.

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