The money supply experienced phenomenal growth in Lebanon within one month, increasing by 439% between December 2023 and January 2024. What are the reasons for this, and what does it signify?
A recently published report revealed that Lebanon has experienced a significant increase in the circulating money supply, which multiplied by more than five times in just one month. Accordingly, the M4 measure of currency in circulation and bank accounts in the country increased by 439% in January 2024 compared to December 2023, where it had increased by 0.1%, according to data from the Central Bank of Lebanon (BDL).
The money supply corresponds to the volume of currency (both physical and digital) circulating in an economy at a given time. In Lebanon, this supply is evaluated and regulated by the BDL.
The money supply is assessed, among other factors, by consolidating the balance sheets of the central bank, credit institutions, and financial institutions. This data contributes to compiling a monetary balance sheet, updated every month.
According to Fouad Zmokhol, President of the International Movement of Lebanese Enterprises (MIDEL) and Dean of the Faculty of Management at USJ, this increase in the money supply is "very normal with the salary increases granted to the public sector," not to mention "the implementation of the new budget, the officialization of the exchange rate of the dollar against the Lebanese pound at 89,500, and the conversion rate of taxes and duties to 89,500 pounds."
On the other hand, Nassib Ghobril, Chief Economist at Byblos Bank, believes that "all this fuss about the money supply is not justified." According to him, since the BDL changed the exchange rate from 15,000 pounds to 89,500 pounds for a dollar since the end of January 2024, all official balances have changed and increased.
The BDL's balance sheet and the consolidated balance sheets of commercial banks have increased proportionally to the exchange rate hike. "It's the same for the money supply," he explains. The economist believes that none of these considerations about the reasons for this increase are in line with reality. He recalls that the BDL issued a circular stating that the balances of all companies and institutions should be calculated at the exchange rate of 89,500 pounds from the figures of January 2024. "This also applies to the figures that the BDL publishes regarding the currency in circulation," he says. The only reason for this increase, according to him, is the increase in the exchange rate, emphasizing that "this will not affect the stability of the exchange rate in the parallel market."
Will this lead to inflation? "No," he answers, "since inflation is already very high." He assured us that this increase in the money supply is purely technical. "These are figures that have changed, not a modification of economic activity," Ghobril concluded.
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