As the price of the dollar surges on the black market, reaching an all-time high of 10,000L.L/USD, the streets erupted in protests once again in various Lebanese regions. Citizens took to the street, blocked highways, and burnt tires in protest of the increasingly difficult financial and living conditions. Economic expert Louis Houbeika warned, in an interview with Janoubia, that “it is not possible to set a limit for the rise in the price of the dollar, as it may exceed twenty or thirty thousand Lebanese Liras. This is a direct result of the lack or shortage of supply of the foreign currency in the market to meet the increasing demand.”
The dollar price, which has been hovering for the past month between 9500 and 9800, broke the 10,000L.L barrier in a historic fashion that prompted the questions: Why did this occurred? And will the price exceed 10,000 and by how much. This matter causes significant concern for the people because the price will certainly be reflected in the price of food and basic commodities. The price of food and basic commodities has seen a 144% increase in the past year according to the IMF, and half of the population of Lebanon have already gone below the poverty line. Social collapse, as a result, has become imminent.
Increase in Demand, Decrease in Supply
Houbeika indicated that: “This catastrophic collapse of the Lira today, as it reached 10,000L.L/USD, is a natural consequence of the current crisis”, adding that “the massive increase in demand for the dollar versus the almost absent supply caused this outcome.” He the pointed out that: “People are clinging to their dollars and do not resort to selling them until necessary and only by increments. This shrinks supply which in turn leads to a rapid rise in price, as Lebanon is a small market.”
Houbeika remarked saying: “What Lebanon is witnessing right now in terms of protests and road blockage will itself also reflect on the Lira price. It will cause a downward spiral in value if the situation were to persist. The more the dollar appreciates, the more likely it is for people to hold on to their dollars for fear of what tomorrow may hold. Ultimately the demand for dollars will continue to increase.”
One Dollar to Reach 30 Thousand!
In response, Houbeika said that should there still not be a breakthrough in the political gridlock relating to the new cabinet formation, “the dollar price will have no upper limit.” Adding that: “We cannot predict what the price may reach, it might go up 20 or even 30 thousand!”
Role of the Banks
While it had been rumored the reason for the dramatic rise in price was caused by exchangers withdrawing large amounts of dollars from the market on behalf of the banks who are committed to pay their foreign liabilities with external funds, Houbeika did not agree with that assessment. He clarified to Janoubia saying that: “The Lebanese financial market is very small, and the amounts settled by the banks are around $3.5 billion and could have only been supplied from foreign capital, and not from within the Lebanese economy.” He added: “Had the exchangers collected that amount of dollars from within the Lebanese market, the price of a dollar would have soared upwards of 50,000!… The banks secured the dollars from abroad through selling properties and assets they owned. It is yet unknown whether the banks have paid the 3% of its total deposits that it owes, and the central bank must clarify this matter.”