Concealed haircut during Lebanon financial & economic crisis

Jamal Abi Faraj |

A lot of talks has been going around regarding haircut on bank deposits, or flipping the dollar accounts to Lebanese lira, these considered to be logic in midst of the economic and financial crisis that is looming in the country.
On the other hand, officials, mainly Riad Salameh Governor of the central bank have declared in several occasions that neither of the above solutions will be adopted, he even went further by telling us that haircuts in Lebanon are against law.

Hence the big question lies, how and when will the banks alleviate the tight restrictions that have been implemented especially on dollar withdrawals?

By taking a closer look at what is happing, a concealed haircut is being implemented.

How?

Each week people head to their banks in order to withdraw the weekly limit that is set on their $ accounts arbitrarily for each bank, continue to exchange offices to sell the dollars and buy LBP on the unofficial fixed rate that was recently set in consent between the governor and exchange offices at 2,000L.L, in there turn exchange offices having the available $ will engage in buying dollar checks at a discounted rate where some times it’s exceeding 35%, i.e. seller will get $65 in cash for each $100 in check. Exchange offices in collaboration with banks take the check and cash it in full but in LBP currency from the banking system with no limit restriction, in this way exchange offices will secure their cash in LBP to continue buying dollar from their customers and banks will continue swapping USD balances to LBP without being directly involved.

That’s why we have noticed the peculiar move by registered exchange offices through setting a ceiling on the exchange rate at 2,000 LBP/$ in collaboration with the governor, knowing that previously it exceeded 2,500 LBP/$ alleging that rate pricing is dependent on supply & demand.
What happened to that theory?