In an article in An-Nahar newspaper in the Saturday December 13, 2024 issue, it was reported that the Government and the Monetary Authorities are working on a solution to the USD deposits in excess of $100,000 that are stuck in the banking system (a) . The proposed solution involves giving depositors USD zero-coupon (marketable) bonds equal to the original deposit amounts and redeemed after 40 years. The solution means also that deposits up-to $100,000 will be returned cash in full to depositors, presumably over the same period.
To see what the solution entails, we need first to calculate the proximate amount of the USD deposits above $100,000. Given that USD deposits are now close to $92 billion. And given also that deposits at or below $100,000 are about $15.5 billion, non-eligible deposits at about $22 billion, excess interest at $5 billion, and doubtful deposits at $5 billion, then all these add up to $47.5 billion (b) . This implies that USD deposits above $100,000 are equal close to $44.5 billion ($92-$47.5 billion).
We need also to understand what a zero-coupon means. Very simply, a zero-coupon bond is a debt security that does not pay interest and is redeemed for its full face value at maturity. But though the zero-coupon does not pay interest, it is traded however at a deep discount in the market (c) . More formally, the price of a zero-coupon bond can be calculated as:
Price = M/ (1 + r)n
Where: M = maturity value or face value of the bond; r = required rate of interest; n = number of years until maturity
Turning to the solution itself by applying the above formula, and keeping in mind that n is 40 years and the required interest is approximately 4.7% ala the corresponding rate on US government bonds, then the market price or current value of the eligible USD deposits above $100,000 is close to $7.1 billion (or close to 16% of the total). Note that this current value is negatively related to n and r, meaning it rises as n and r fall or vice versa.
No doubt, the solution is novel, clever, and potentially sellable as it promises depositors their full amount in the long-run; and for those with shorter and impatient time frame, they can trade their bonds in the market at a discount. Two hiccups remain: first, the discount would not be small; second, would the bonds assume all the eligible USD deposits or be part of a Deposit Recovery Fund?