Lebanese Money Supply Aggregates: Oct 2019 – Dec 2022


Money Supply LBP BnOct 2019Dec 2020Dec 2021Dec 2022
+ DD in LBP6,34010,91416,42225,266
= M111,02240,15657,93798,780
+ SD in LBP67,45127,35421,07017,802
= M278,47367,51079,007116,583
+ Deposits USD1132,650132,022121,729112,620
+ Bonds2281519334369
= M3211,404200,052201,070229,572
+ TBs by Public11,21711,52614,04518,189
= M4222,621211,578215,115247,761

Source: ABL; 1,2: Valued at 1,507 LBP

To recall, the money supply aggregates are calculated as follows: Currency in Circulation (CC) plus Demand Deposits (DD) in LBP is equal to M1; M1 plus Savings Deposits (SD) in LBP is equal to M2; M2 plus Deposits in USD and Bonds is equal to M3; and M3 plus Treasury Bills held by Public is equal to M4.

The above table reveals the following interesting developments for the monetary aggregates from Oct 2019 to Dec 2022:

First, and not surprisingly, CC increased the most from 4,682 Bn LBP to 73,514 Bn LBP due to debt monetization and BDL FX interventions. But not for BDL’ special measures, especially the Sayrafa platform that helped to absorb domestic liquidity and subsidize public sector wages, CC would have increased by far more.

Second, DD in LBP increased from 6,340 Bn LBP to 25,266 Bn LBP but SD in LBP fell from 67,451 Bn LBP to 17,802 Bn LBP, such that total deposits (DD + SD) fell from 73,791 Bn LBP to 43,068 Bn LBP. This is explained by people’s need for more liquidity for transaction purposes as prices of goods and services rose due to exchange rate depreciations.

Third, deposits in USD fell slightly from 132,650 Bn LBP to 112,620 Bn LBP as informal capital controls were placed on them. However, part of the USD deposits withdrawn have been exchanged at the “lollar” rate to LBP and deposited as DD, which partly explains the increase in DD in LBP discussed earlier.

Fourth, TBs held by the public rose from 11,217 Bn LBP to 18,189 Bn LBP as people opted to more investments in TBs due to the higher interest rates on them (average 6.5%) than deposits (average less than 1%).

Fifth, M4 increased slightly from 222,621 Bn LBP to 247,761 Bn LBP as the increase in CC and TBs held by the public outweighed the decrease in deposits in USD and LBP.

Sixth, in other words, the increase in M4 could be attributed to an increase in “outside money” or CC, despite the decrease in “inside money” or deposits.

In conclusion, given the limited increase in M4, we can safely say that BDL has succeeded in controlling the money supply in these exceedingly turbulent times in Lebanon. And the flip side of this is that, had he hasn’t done that, then the exchange rate depreciations would have been a lot bigger and faster.





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