BEIRUT (Reuters) – Lebanon edged further away from its long-held dollar currency peg on Friday as the central bank set an exchange rate for wire transfers that was 58% below the battered Lebanese pound’s official price.
The step is one of several by the central bank to reflect the pound’s steep decline amid a dollar liquidity crunch since October, when long-brewing economic troubles came to a head, even as authorities maintain the old peg for vital imports.
A central bank source said the rate set for wire transfer firms was 3,625 Lebanese pounds per dollar on Friday, reflecting its slump on a parallel market from the peg of 1,507.5.
“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.”
The rate announced on Friday applies to remittances by Lebanese sending money home to their families from abroad, which were previously available at wire transfer offices in dollars.
Referring to Friday’s price for wire transfers, a senior banker said central bank governor Riad Salameh was effectively devaluing the pound though its value may still fluctuate.
The pound has crumbled during a financial and banking crisis which is widely considered to be the biggest risk to stability since the country’s 1975-90 civil war, undermining faith in the economy and the dollar peg.
With dollars in short supply, the central bank this month said money-transfer services must issue cash in pounds at a “market rate” and this week said withdrawals from dollar bank accounts must take place in pounds also at market rates.
People queued at money transfer offices on Thursday, the last day they were paying out dollars, Lebanese media reported.
“We are seeing a rapid move towards a de facto de-pegging of the currency where its looking like there’ll be an official mechanism in the coming weeks for those wanting to purchase the currency,” said Farouk Soussa, senior Middle East and North Africa economist with Goldman Sachs.
“It’s not clear whether they will devalue the currency or de-peg the currency but closing the gap between the parallel market and official rate is very important for the longer-term recovery in the economy.”
Banking sources said they expected the rate applied to bank account 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.
The official rate still applies to fuel, wheat and medicine imports in an effort to slow spiralling inflation in the import-dependent economy.
Finance Minister Ghazi Wazni told al-Joumhuria newspaper on Friday the fall in the value of the Lebanese pound could not be attributed to economic, financial or monetary reasons, saying 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.”
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”.
Foreign currency dealers are on strike until Monday “to warn about the continued deterioration of the exchange rate”, their union said on Thursday.
(Reporting by Tom Perry and Samia Nakhoul in Beirut and Tom Arnold in London; editing by Toby Chopra, Larry King and Alexander Smith)
