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The exchange rate of the banking dollar, also called the “lollar” or local dollar, will officially remain at 15,000 pounds until a new decision is made. As for the cash dollar, it is set at 89,500 pounds.
This proposal was submitted by the caretaker Minister of Finance, Youssef el-Khalil, to the Council of Ministers during the meeting held last Friday at the Grand Serail. The attending ministers took note of it, as mentioned in the meeting minutes. Thus, the government approved the decision without holding a vote.
It should be noted that the Cabinet is particularly attentive to the exchange rate of the banking dollar because it must honor financial obligations in dollars, notably to public works contractors, who, due to the multidimensional crisis and delays in the payment of their dues, are currently facing financial difficulties.
El-Khalil’s Prerogatives
The issue of the government’s competence to set the exchange rate of the banking dollar was endorsed during a meeting of the Central Council of the Banque du Liban (BDL), held in late December 2022, in the presence of the caretaker Minister of Finance, Youssef el-Khalil. After this meeting, the exchange rate of the banking dollar was set at 15,000 pounds as part of the 2024 budget project, which became the 2024 Finance Law.
It should be noted that the central bank resolved the issue of the dollar exchange rate at 89,500 pounds per dollar in its dealings with commercial banks through Circular 167.
Context of the Request
In practice, last Friday, the Ministry of Finance asked the government to set the exchange rate of the dollar, citing confusion in the accounting records caused by the severe devaluation of the pound compared to the years 2020 to 2023, alongside the strengthening of the concepts of the local dollar and the cash dollar in the domestic market.
“Based on BDL’s circulars regarding exceptional cash withdrawal procedures from foreign currency accounts, the Ministry of Finance proposed to the Council of Ministers to adopt, for the registering of accounting entries related to dollar spending and revenue operations, an exchange rate of 1,507.50 pounds for the years 2020 and 2021. For the year 2022 and subsequent years, the ministry recommended setting the cash dollar and local dollar rate at 1,507.5 pounds for the period from January 1 to July 31, 2022. Between August 1, 2022, and January 31, 2023, the cash dollar rate would be adjusted according to the prevailing exchange rate, while the local dollar would remain at 1,507.50 pounds. From February 1, 2023, to December 31, 2023, and from January 1, 2024, to February 13, 2024, the cash dollar rate would be aligned with the exchange rate, with the local dollar fixed at 15,000 pounds. From February 14, 2024, until a new decision is made, the cash dollar rate would be set at 89,500 pounds, and the local dollar would remain at 15,000 pounds,” the ministry’s proposal reads.
Concerns and Lack of Funding
Sources close to the government explain that the reasons for postponing the decision to unify the dollar exchange rate are now well known.
This postponement is related to the ongoing preparation of a banking restructuring project. It is also motivated by the desire of the monetary and financial authorities to avoid increasing the money supply in pounds, given the volume of bank deposits that may be converted into pounds. Such an increase in money supply would lead to a further devaluation of the pound against the dollar, with even more disastrous consequences for the country.
In this context, it is important to recall that last April, caretaker Prime Minister Najib Mikati, along with his advisor, former Minister Nicolas Nahas, separately announced to the press that the lollar exchange rate would soon be increased to 25,000 or 30,000 pounds.
That said, the proposal of the caretaker Minister of Finance, endorsed by the Council of Ministers last Friday, officially recognizes for the first time the distinction between the cash dollar and the local dollar.
