Lebanese currency crisis reflects the state of the country

The past weeks have seen the financial situation in Lebanon worsen. The strikes in banks followed by the torching of branches by depositors who have been robbed of their savings were just the tip of the iceberg. Economic experts were all mesmerized by the appearance of a sudden $16 billion line in Banque du Liban’s biweekly disclosure of its balance sheet. This amount appeared to relate to loans to the public sector. All this happened after the massive devaluation of the Lebanese lira earlier this month. The Lebanese people’s trust in their financial and banking system has already been destroyed. Are they about to lose trust in their own currency too?

It is sad that, as countries around the world look to technology to launch digital currencies, Lebanon is in the process of destroying its own. One may wonder if the Lebanese lira is about to disappear altogether. Or at least if the Lebanese will just stop trading in it and move to an all-dollar economy. Just as all the symbols and representations of the state are being destroyed, the legal tender follows the same path. The Lebanese resent it and what it has done to their lives. Gone are the glory days when Beirut would be compared to international financial capitals. Gone are the comparisons to Switzerland.

The Lebanese lira has been, from its establishment until this disastrous day, a symbol of Lebanon’s situation. The lira was introduced during the French Mandate of Lebanon and Syria as a replacement for the French franc. It obviously continued once the country gained its independence. It is also symbolic that the country’s currency was first pegged to the franc before moving on to a dollar peg. This was symbolic of the global geopolitical influences.

Throughout the years, the only constant has been the lira’s loss in value, just like the state has lost its own. From one lira being equivalent to 20 francs at its introduction and $1 buying 3.9 lira in 1961, it went into the abyss. Through crises, civil wars and mismanagement, it was devalued to 1,500 lira to the dollar. It has now reached its lowest value of 15,000 to the dollar. Understandably, trust in the Lebanese legal tender has evaporated, just like it has in the state. This has Lebanese asking why they should keep using it instead of completely reverting to using US dollars in their daily lives.

Just as all the symbols and representations of the state are being destroyed, the legal tender follows the same path

Khaled Abou Zahr

The abandonment of the national currency is a real possibility. The main reason is that Lebanon has become the most remittance-dependent country in the world. Money sent to the country accounted for 53.8 percent of gross domestic product in 2021, according to an international study. With trust disappearing from all institutions, why should relatives change these funds into the decaying Lebanese lira and not decide to trade using dollars? Why would they exchange their money for the local currency beyond payments of government fees if it means losing value on a daily basis?

To put things into perspective, $7.15 billion was sent by hard-working Lebanese to their families in 2021. This has been the average for the past 10 years and is a big part of the amount that disappeared due to the Ponzi scheme that was put in place within the banking system. This banking and financial system has been used to cover the deals between political leaders, as well as for the financial operations of Hezbollah and all Iranian allies. At the same time, Hezbollah uses its own financial system to increase its stranglehold on the country and avoid sanctions.

From the capital flight and corrupt links in Iraq and Iran to subsidizing and smuggling materials into Syria, this was the role of the country’s banking sector: the dirty work. Moreover, it was politically covered. How has the financial hub of the Middle East turned into the hub of chaos, death and destruction? The answer is simple. The extractive and predatory strategy of Syria, which was inherited by Hezbollah and Iran, is responsible for this collapse. Death or corruption was the only choice. As we have seen in South American organized crime movies, it is the famous “Plata o plomo” (silver or lead) that ruled the country. This phrase means either accept a bribe or lose your life.

The opacity of the financial sector, with institutions capable of establishing their own rules and acting without accountability to the people, is similar to the political situation. Therefore, the Lebanese lira will not survive without regaining the trust of the people, which requires a more transparent and clearer approach. There is no doubt this will not happen in the current political landscape, especially as it has been revealed by the US Justice Department that there have been illegal financial operations conducted by Hezbollah.

Without a drastic change in Lebanon, it is not only the currency that will disappear but also the country itself. This change needs to go beyond electing a president or naming a prime minister in order to unlock more International Monetary Fund debt, which will undoubtedly evaporate just like all the funding dedicated to Beirut. This change is about more than reforms or the reorganization of the financial sector, it is about admitting the failures and the disease that plague the country and proceeding with a new political and economic system. There is no other way out.

• Khaled Abou Zahr is the founder of Barbicane, a space-focused investment syndication platform. He is the CEO of EurabiaMedia and editor of Al-Watan Al-Arabi.