Beyond Sayrafa, A New Road Towards A Managed Floating Rate

After approximately 18 months of fluctuations in Lebanon’s monetary landscape, Lebanese authorities opted for the Bloomberg platform as an alternative monetary platform to replace “Sayrafa”. Lebanon plans to shift from the fixed peg of its local currency to a “managed float rate “probably by the end of September. The central bank’s vice governors presented this proposal to parliamentarians, aiming to adopt a “managed floating” system that reflects the pound’s actual value.

The proposal commits to establishing rules for the transition to a floating exchange rate system by September 2023, with the ability to intervene if necessary. Additionally, it suggests creating a new electronic foreign exchange platform. While doing so, the central bank plans to continue purchasing U.S. dollars in the market to avoid depleting reserves in support of the pound. The use of the Bloomberg platform is expected to promote market rate liberalization and enhance transparency, redirecting demand away from the US dollar and enabling central bank operations. As such, the main objective of utilizing the Bloomberg platform presently is to stabilize the market for the US dollar, enabling the central bank to conduct its operations, reducing liquidity of the Lebanese pound market arbitrage. This marks a significant shift as it will minimize central bank intervention, providing a clearer understanding of the true value of the Lebanese pound. Over time, the platform will work towards liberalizing market rates and promoting greater transparency in transactions.

Mansouri ushers a new reform plan, emphasizing the necessity of a flexible exchange rate and vehemently opposing the use of depositors’ funds to cover government debt. This move marks the cessation of pegging the Lebanese pound to the US dollar due to the nation’s frequent political turmoil. However, it remains uncertain which economic and monetary factors can ensure the ongoing stability of the exchange rate. The challenging experience with Sayrafa revealed that a platform, even with central bank support, cannot fully control the Lebanese lira’s exchange rate.

Hence, the economic considerations presented appear vague and might not signal progress in addressing the inflation crisis that has plagued the nation since late 2019. The economic collapse, exacerbated by political deadlock, portends further inflation challenges amid dwindling public services. However, some doubt the platform’s ability to eliminate the parallel market, and it appears to function as a form of exchange control. Its success depends on bank capital control laws and sectoral reforms, with questions about the economy’s ability to maintain a free-floating rate with dollarizing market transactions.

The effectiveness of the Bloomberg platform in liberalizing exchange rates could be uncertain. The primary concern now is whether Lebanon’s economy and its black-market forces can support a floating exchange rate system and the availability of forex for items like fuel, medicines, and food that were previously provided by the Sayrafa platform.

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