The Banque du Liban has once again chosen to wait until the end of the week to adopt a measure announced for months, but whose effects on the dollar/pound exchange rate on the market are however difficult to anticipate given the complexity of the crisis the country is going through.
As announced last November by its governor Riad Salamé, the BDL has thus formalized the change in the conversion rate for “bank dollars” or “lollars” to 15,000 pounds for one dollar. The rate change is scheduled for next February 1, by two intermediate circulars dated yesterday, Friday January 20 (No. 657 and No. 658).
Born in public debate, the expressions “banking dollars”, “lollars” or even “Lebanese dollars” designate the funds that banks refuse, without being authorized to do so by law or the terms of deposit contracts, to return to their real value to their customers, since the beginning of the crisis. If the Parliament and the government have still not intervened to correct this anomaly, the BDL has put in place over time several mechanisms allowing bank customers to withdraw part of their funds in small doses and at a discount. These bank dollars have coexisted since the first months of the crisis with “real dollars”, called “fresh dollars” and exchangeable at a fixed rate on a market made up of authorized and illegal stockbrokers. The BDL protected the value of these real dollars via another circular (No. 150 of April 9, 2020).
Cancellation of 8,000 and 12,000 rates
The transition to a rate of 15,000 pounds for one dollar applies to transactions permitted by two of these mechanisms, namely the main circulars n° 151 of April 21, 2020 and n° 158 of June 8, 2021, which therefore been amended by the new texts.
The first of these two mechanisms allows depositors subject to restrictions on access to their foreign currency accounts to withdraw small amounts in pounds each month, and at a rate that the BDL had set at 8,000 pounds at the end of 2021, and this so as not to exceed a ceiling of 1,600 dollars per month.
The second authorizes monthly withdrawals of 400 dollars in cash and the equivalent sum in pounds converted at a rate which has always been 12,000 pounds for one dollar, on the same restricted accounts. Withdrawals via this mechanism are thus limited by the BDL to 4,800 bank dollars that can be withdrawn in dollars per year; and 4,800 others accessible in books over the same period. Only half of the pound portion can be withdrawn, while the other half can only be used to make credit card payments.
The coexistence of bank dollars and real dollars is one of the consequences of the multiplicity of exchange rates that characterizes the Lebanese crisis. Thus, although overtaken by the reality of the market, the old official parity of 1,507.5 pounds was maintained for a long time in the banking sector. At the same time as the banks restricted their customers’ access to their deposits, they also authorized those who had loans in dollars to repay, to do so in pounds but continuing to apply the old parity, or else in ” bank dollars” generally transferable by cheque. This phenomenon has favored the creation of an informal market for bank checks in “lollar” and even in “bira” (bank lira) for those who wish to buy checks. The principle is always the same: the check is purchased with cash but at a price lower than its face value.
Appreciation of checks in lollars
In addition to these two circulars, the BDL also published a third yesterday. Bearing the number 656, this text modifies, from February 1, the terms of repayment of loans granted in foreign currency before the crisis.
With regard to customers residing in Lebanon, the BDL cancels the possibility of being able to repay in Lebanese pounds, at the rate of 1,507.5 pounds for one dollar, a loan granted in foreign currency. If the circular does not mention the means accepted, it implies that these payments will now have to be made in the currency in which they were issued, and that they could be made through checks denominated in dollars. This rules out the possibility of paying them in Lebanese pounds, at a higher rate.
As far as customers of Lebanese banks residing abroad are concerned, the BDL goes even further. It requires them, also from February 1, to repay these loans in “fresh” currencies, including for personal loans and those for housing, so far excluded.
If checks in lollars have been selling in recent days on the parallel market at around 15% of their nominal value, their counterpart yesterday rose to almost 20% according to two financial sources. This appreciation is partly explained by the increase in the exchange rate applicable to these dollars blocked in banks, but also by the rush of certain customers wanting to repay all of their credits through payments by check before the aforementioned deadline. .