Over the past 20 years, it was repeatedly argued that the Lebanese fixed exchange rate was overvalued, sometimes by as high as 50%. What is surprising is that the fixed system has held for 22 years, from 1997 to 2019, despite all criticisms to the contrary. But, ultimately, the system ran out of luck, and it was raptured into a dual system by November 2019.
It was the first time in its recent history that the free Lebanese economy experiences such a system of exchange rates, and very little of its economics is known to the public. So what we intend to do in this introduction is to fill this gap by providing preliminary notes behind the theory and empirics of the dual exchange rate.
We will first provide some background on its origin and features; then we will discuss in some details the relation between the equilibrium exchange rate and the dual rate; and we will end with how well all these aspects fit the new Lebanese exchange rate framework.
For the full report, kindly follow the link: Introduction to the Economics of Dual Exchange Rates in Lebanon March 2020