Leaked financial statements indicate that the governor of the Lebanese central bank (Banque du Liban), Riad Salameh, used unusual accounting measures to boost the central bank’s assets.
According to the Financial Times, which saw a copy of these leaked statements, Salameh boosted the BDL’s assets by $6 billion as Lebanon’s financial system spiraled out of control.
The 2018 statements, signed off by two independent auditors late in June, bizarrely recorded an asset worth of $6 billion for “seigniorage on financial stability,” the value of which “the governor determines… as deemed appropriate by him.”
Seigniorage typically refers to the profits made when a bank prints cash. However, as two central banking experts told the newspaper, the concept might have been invoked in this case in an attempt to hide the BDL’s losses.
While they are usually accounted for as an income stream, the central bank unconventionally recorded expected seigniorage profits as an asset, which experts have deemed misleading.
“It is just a way of accounting to artificially blow up the assets of the central bank and hide [its] massively negative net worth or capital,” said Willem Buiter, former Citigroup global chief economist, academic, and central banking specialist.
Salameh previously defended the BDL’s unorthodox accounting measures, saying, “We didn’t do anything that was not agreed on internationally.” That’s despite the International Monetary Fund warning Lebanon in 2019 that the practices were becoming more risky and expensive.
Recently, the Lebanese Cabinet approved the forensic auditing of the central bank, less than a month after Finance Minister Ghazi Wazni said that he would not support it.
Central Bank Governor Riad Salameh has been partially blamed for the prevailing economic crisis that is unprecedented in Lebanon’s history, whereby the Lebanese pound has lost over 80% of its value against the US dollar.
