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New 100,000 Lebanese pound banknotes have been in circulation since December 1, 2023. There’s no need to panic, as this is a purely technical measure. However, what about the 500,000 and 1,000,000 Lebanese pound banknotes?
Irrespective of the purpose behind printing higher-value banknotes than those currently in circulation, such a measure undoubtedly sends a negative signal to the markets. The immediate inference is one of an increased depreciation in the value of the currency in question, namely in terms of its purchasing power.
The printing of high-value banknotes (including the 500,000 and 1,000,000 Lebanese pound notes as advocated by various sources) depends upon the approval of the bill by the Parliament that convened in a plenary session. A bill to this effect was introduced last May by MP Ziad Hawat and endorsed by joint parliamentary committees.
The Lebanese Pound Lost Its Value
Once implemented, this measure will officially deliver the final blow to the national currency. “It will be an official acknowledgment that the pound has become valueless and has lost all purchasing power,” emphasizes Nicole Ballouz Baker, associate professor at the Faculty of Business Administration at USJ, in an interview with This is Beirut.
Currently, the average citizen is navigating a situation, using the national currency mainly for tax payments while grappling with a ‘dollarization’ strategy that has failed to curb inflation. It is important to acknowledge that the government’s decision to dollarize the economy has not achieved the intended economic outcomes.
An Underground Economy
The supporters of the proposed legislation argue that high-value banknotes are more practical and better suited for conducting commercial transactions, especially amid the depreciation of the Lebanese pound. For instance, the amount of 500,000 Lebanese pounds currently translates to approximately 5.5 dollars.
However, those same supporters fail to acknowledge that large-value banknotes also contribute to fraud, corruption, money laundering, and the financing of terrorism. These bills are easier to hide and to flow around when used for illicit activities.
The need for anonymity and the fear of being identified in a country like Lebanon, where the underground economy makes up nearly half of the total economy, according to the latest World Bank report on Lebanon, undoubtedly contribute to the allure of high-value banknotes.
No Miracles in Economics
In the realm of economics, there are no such things as miracles. As such, the era when the dollar held a value of 1,507.5 Lebanese pounds is long gone. Today, Lebanon is ensnared in a cycle of economic adversity, eagerly anticipating the alignment of multiple internal factors and a favorable period to kick-start the recovery process.
Meanwhile, and for the sake of practicality, the release of new high-value banknotes will, albeit reluctantly, help the Lebanese population “gradually adapt” to the increasing prices of consumer goods and services. This is a result of unbridled inflation triggered by a multidimensional crisis that unfolded in October 2019.
Currency Issuance
That said, the currency printing process is entirely different from currency issuance. The Lebanese Central Bank (BDL) has no intention of generating additional currency, thereby avoiding an increase in the circulating money supply. Moreover, it has effectively stabilized the exchange rate to around 90,000 LBP per dollar, following a peak of 143,000 LBP per dollar last March, and has gradually reduced its market involvement.
