New Lebanese Exchange Rate Amidst Financial Crisis
Lebanon has been battling a devastating financial crisis since August 2019. According to the World Bank, it has been considered one of the worst economic crises in the past 150 years. The effects of the crisis have only been heightened by the Covid-19 pandemic and the Beirut port explosion in August 2020, which rocked the small Mediterranean country and sent over 80% of the Lebanese population into poverty. The Lebanese government has been setting new exchange rates to help stabilize the economy. The newest rate was implemented on Wednesday, February 1, 2023, which is 15,000 Lebanese liras (pounds) per one U.S. dollar. This rate is a sharp increase from the prior rate of 8,000 liras per dollar. The new exchange rate is a measure taken by the Lebanese government to help stabilize the current financial situation in Lebanon; however, it is only a temporary solution that does not address the multi-layered financial crisis. The biggest challenge is how to implement this exchange rate. Ever since the beginning of the financial crisis in 2019, Lebanese citizens have been living in an essentially “black market” system of buying and selling on a cash-only basis. At the beginning of the crisis in 2019, Lebanese citizens were rushing into banks to gather large amounts of cash. The cash-only system continues to dominate Lebanese life in the midst of this financial crisis. This “black market” system operates at an exchange rate of 60,000 liras per dollar, which is the rate that most Lebanese citizens use on a daily basis to buy and sell with cash. The new government rate is nowhere near this cash rate, which poses a problem of enforcement and implementation. If the Lebanese population continues to operate on a cash-only basis, the new rate will do little to change the financial situation of the country.
While the setting of a new exchange rate is a measure that the Lebanese Central Bank has taken in hopes of stabilizing the economy. It is only a temporary fix to the crippling financial crisis. Lebanon will not recover from this financial crisis unless the government implements a long-term economic recovery plan. While this exchange rate is a step in the right direction, a long-term recovery plan is necessary to recover from this financial crisis.
By Maddie Bogdjalian