Lebanon lowers pound exchange rate more than 50%

BEIRUT - The Lebanese central bank set an exchange rate of 3,625 Lebanese pounds per dollar to be applied by money-transfer firms on Friday, a central bank source said, 58% weaker than the official peg as the country grapples with a financial crisis.

The new rate is seen as part of wider moves by the central bank away from a peg in place since 1997, bankers say. Though the official pegged rate of 1,507.5 pounds is still in place, it amounts to an effective devaluation of the pound, they say.

The new rate applies to money sent through wire transfer offices, which are used by many Lebanese; the tiny Mediterranean country of about 5 million people has a large diaspora that sends foreign currency home or relies on transfers from here to students abroad.

Many Lebanese also keep their savings in foreign currency, and new regulations for any withdrawals to be in the collapsing Lebanese pound means they are facing a loss. That measure has deepened a sense of panic in the country, where people have come to rely on the stability of the local currency that has been pegged to the dollar for thirty years.

The Lebanese pound has slumped on a parallel market since October, when the country's long-brewing economic troubles came to a head, prompting a financial and banking crisis considered the biggest risk to stability since the 1975-90 civil war.

The authorities are still applying the official pegged rate for essential imports - fuel, wheat and medicine - in an effort to slow spiralling inflation in the import-dependent economy.

"Prices may change every day and will be set the day before," the central bank source said, adding that the rate reflected the price dollars were fetching at foreign exchange offices. "In the event that there are major fluctuations during the day, the price may be set again during the same day."

A senior banker said central bank governor Riad Salameh was effectively devaluing the currency without announcing it.

With dollars in short supply, the central bank earlier this month said the money-transfer services must issue cash in the local currency at a "market rate".

Earlier this week, the central bank also said depositors with dollar accounts in Lebanon would be paid cash in pounds, also at a "market rate", within each bank's withdrawal limits.

Banking sources said they expected the rate applied to such withdrawals to be close to the rate set by the central bank for wire transfer firms. Banks, exchange dealers and the central bank will meet on Monday to make a decision.

Parliament speaker Nabih Berri urged the government on Thursday to use its legal powers to halt the pound's "dramatic collapse" before it is "too late".

Finance Minister Ghazi Wazni told al-Joumhuria newspaper on Friday the fall could not be attributed to economic, financial or monetary reasons and said it was down to "strong speculation and manipulation in the market".

"This increased the fear of citizens and their concern, which brought about an increase in demand for the dollar."

Foreign currency dealers are on strike until Monday "to warn about the continued deterioration of the exchange rate", their syndicate announced late on Thursday.

Lebanese people have also returned to the streets to demonstrate against the new moves by the central bank, rekindling a protest movement that had lost some momentum during lockdown measures imposed over the coronavirus pandemic.

The lockdown itself has exacerbated the country's economic crisis, with consumer groups recording a general 58% price increase on basic commodities since mid-October.