Содержание статьи:
- Lebanon: how did it get here?
- The great banking system of Ponzi
- October 17, 2019
- Possible solutions
- Non-traditional solution: Bitcoin, anyone?
Lebanon in the Middle East is a country with well-known economic problems, which has worsened for years and culminates during the COVID-19 pandemic.
With the unfavorable situation of the country, many eminent economists have proposed far-reaching solutions to the depreciation of the local currency and dependence on the dollar. Nevertheless, a recent report has explored the possibility of a more non-traditional solution - Bitcoin .
Lebanon: how did it get here?
The country's economy is mainly based on services, the tourism sector being responsible for a large part of Lebanon's GDP. The country has failed to develop autonomous national industries and some reports indicate that it imports around 80% of its products. These include oil, meat, grain and other supplies.
In 1997, the Central Bank of Lebanon decided to introduce more stability for the national currency (read it) by associating it with 1 507 against 1 US dollar. As a result, the country has also started to receive inflows from tourism, remittances, loans and foreign aid in USD, instead of the pound.
Although pegging its currency to the US dollar has certain advantages, as mentioned above, the increased dollarization of Lebanon has resulted in significant wealth inequalities. Not only did the nation massively increase its debt, but the wealthiest 1% of citizens earned about 25% of the GDP.
The great banking system of Ponzi
When most people think of a Ponzi scheme, they automatically refer to certain shady MLM operations or even cryptocurrency simulations. Only a few conspiracy theorists believe that the central bank of a respected country would never use such activities. However, something quite similar happened in Lebanon.
In justifying the reserves of the central bank have declined and have needed more deposits to support its sustainability, Lebanese banks have started offering suspiciously high interest rates on large sums blocked for (at least) three years.
"We will see an improvement in deposit growth on the one hand, and an improvement in the central bank's foreign exchange reserves as a result of these operations." - said chief economist and head of research at Bank Audi, Marwan Barakat.
Blominvest Bank research director Marwan Mikhael said it would stabilize reserves because "what we are going through is a deterioration in confidence and the main task of the government now is to be able to restore confidence".
Banks have initially demanded a minimum deposit of 20 million, but has reduced the amount to $ 5 million. In return, they have offered annual rates of narcotics interest of 14%.
Needless to say, the unsustainability of the supply of such massive interest rates inevitably caused serious problems with the read-dollar collaboration in the country. The first red flag arrived in 2019 when the head of the Central Bank of Lebanon, Riad Salameh, issued an order demanding that all money transfer offices, such as Western Union and MoneyGram, pay cash in pounds rather than 'in US dollars. The request even concerned transfers, which were specifically denominated in dollars.
While citizens have started to notice these differences during the remainder of 2019, the demand for dollars has exploded. Currency exchange offices and banks could not handle the influx of people wanting to get rid of their read and receive dollars instead.
Although the reading remained officially fixed at 1 507 against 1 with the USD, rising demand and lack of dollars has led to the creation of exchange on the black market where people have bought US dollars at a much higher. On some occasions, the rate of these exchanges has exploded rapidly to 10,000 Lira per dollar, resulting in a monetary crisis and hyperinflation. The banks have limited withdrawals in USD $ 300, then to zero.
The situation worsened when Fitch lowered the credit rating of B- to CCC Lebanon, and US sanctions have hit Jammal Trust Bank for allegedly financed Hezbollah.
October 17, 2019
Despite all of these issues, what sparked the public was a proposed WhatsApp phone call tax. It was the last straw residents had to endure before starting peaceful protests nationwide. Started on October 17, 2019, they continued for months, despite the almost daily cut of power from their communities by the government.
Prime Minister Saad Hariri finally resigned, but that was not enough for the Lebanese. However, as they progressed and attracted the attention of the world, the COVID-19 pandemic broke out and the government had legitimate reasons to prevent them from leaving the streets.
By imposing long quarantine periods, the authorities have managed to calm the surface situation, but the consequences for the economy have been devastating. The closures have led to a surge in unemployment and ultimately a lack of funds to buy the necessities.
Inflation alone in 2020 went from 11.4% and 17.5% in February and March to 46.6 in April, and a record 56.5% in May. Although June's figures are not yet public, most estimates expect an even higher percentage.
Possible solutions
As the tax proposals were quickly abandoned, Lebanon did not have an appropriate solution. The protesters are demanding a deep transformation that can put some reason back into their ecosystem.
The most discussed solutions include the return to an indexed read on raw materials. Gold seems to be the most reasonable choice, since it occupied precisely this position in many countries until the middle of the last century. However, Lebanon could think outside the box, because a commodity can be anything, grain, petroleum or even cigarettes - as happened in Germany after World War II.
Another plausible solution could be the increase in dollarization. Just as Zimbabwe adopted the USD in 2009 after massive hyperinflation, Lebanon could follow in its footsteps. In addition, the country already has extensive experience in using the dollar for internal and external transactions, which could facilitate the transition.
However, this would ultimately give control over the stability of the United States. Lebanon will depend entirely on how the United States manages its operations and whether it decides to impose sanctions as it has done before.
Non-traditional solution: Bitcoin, anyone?
Lebanon could also head towards an unexplored and perhaps far-fetched polling path. Adopting Bitcoin would be something completely unimaginable, at least for some critics, but could be what the Asian country needs.
Being called as the "people's currency" category by some, Bitcoin is a "commodity", according to the US CFTC.
Although imperfect, the main cryptocurrency allows you to send funds from one place to another quickly and cheaply. It does not go out on weekends and only needs an internet connection to operate.
One of the most important merits of BTC is its decentralized nature. In other words, there is no central authority to impose sanctions, control entry and exit or prohibit withdrawals.
In fact, Bitcoin already has useful use in Lebanon. Numerous reports tell the stories of various Lebanese, who continually transfer funds with BTC or other digital currencies.
This is the story of Maher - an engineer working abroad, who returned home to find despair in his country. Or, as he said - "nothing can prepare you for the shock of this", referring to the financial crisis, the protests and the lack of an appropriate solution. After depositing his dollars in supposedly safe banks, he was forced to withdraw them from Lira and lost almost 40% of the value in just a few weeks.
Still, it looked like he had found such a solution in the largest market-based cryptocurrency. Using Bitcoin , Maher said that “suddenly everything turns around and all options are open.”
Another citizen Mahmoud Dgheim, who said he started using BTC in 2015, added:
“Right now, the Lebanese want to escape strict restrictions on withdrawals and money transfers. They basically want financial freedom. If you want to go around the banking system, Bitcoin is a solution. "
In conclusion, Bitcoin is far from the obvious choice. Operating "only" for a decade, it has yet to prove itself as a sustainable payment option. It has never been used in a position as responsible as having an entire nation dependent on it.
However, it was created during the last great financial crisis to flourish precisely under similar unfavorable conditions. Or, to use more Hollywood terms - he may not be the hero that Lebanon deserves, but he could be the hero he needs if the country actually decides to seek a deep transformation.
