Lebanon adopts new official exchange rate

Lebanon shifted Wednesday its long-standing official exchange rate to 15,000 pounds against the dollar, a central bank source said -- an almost 90 percent devaluation amid a years-long economic crisis.

The Lebanese pound has been officially pegged at 1,507 to the greenback since 1997, but its market value began to slide in late 2019 and hit record lows of more than 60,000 this month.

"One dollar will be worth 15,000," a central bank source told AFP.

"There will no longer be such a thing as the 1,507 rate," the source added, requesting anonymity as they were not authorized to speak to the media.

The first change to the official rate in more than two decades comes as the currency was trading at 60,000 to the dollar on the street on Wednesday -- almost four times the 15,000 rate.

Lebanon's finance ministry had announced last year that it would roll out the 15,000 official exchange rate in November, but the move was not implemented.

Battling surging poverty and financial collapse, Lebanon has seen the pound lose more than 95 percent of its market value to the greenback since 2019.

The country is being run by a caretaker government and is also without a president as lawmakers have repeatedly failed to elect a successor to Michel Aoun, whose mandate expired at the end of October.

The crisis has seen poverty rates climb to reach more than 80 percent of the population, according to the United Nations.

The dramatic measure is meant to stabilize the free-falling Lebanese pound and eliminate the multiple exchange rates that currently exist, a key demand of the International Monetary Fund for a bailout package for Lebanon.

However, it's unclear how the new rate will be implemented or reconcile a host of different exchange rates that exist for public sector salaries, fuel prices and different services, including telecommunications.

Many fear it will lead to another surge in inflation and hike prices of food and other essential goods, as authorities have in the past failed to crack down on illicit price hikes.

Also, the new official rate is nowhere near the current black market rate of about 60,000 pounds to the dollar, used for buying and selling most goods, nor the Central Bank's Sayrafa platform - used for certain financial transactions - with 38,000 for $1. It also will apply to withdrawals from dollar accounts, where customers have been withdrawing some of their trapped savings in the local currency, at an exchange rate far lower than market value.

Currency unification is among a list of reforms the IMF has demanded to finalize a bailout package for Lebanon, tentatively approved in April 2022.

The Finance Ministry already adjusted the customs exchange rate to 15,000 pounds for the dollar in December. Tax collection, balance sheets of the struggling Lebanese banks are now to adjust their exchange rates, and eventually the 2023 state budget.

Since 2019, Lebanon's cash-strapped banks imposed informal limits on cash withdrawals in dollars, with most depositors losing access to their savings after the country's banks made risky investments by buying Lebanese treasury bills, despite widespread corruption from its political leadership.

Economist Sami Zoughaib at The Policy Initiative, a Beirut-based think tank, criticized Wednesday's decision by the Central Bank, and called the measure temporary, in the absence of crucial structural economic reforms.

"We need something that actually reflects the market value, and the only way we can do it is by building a centralized currency market in which people can openly and transparently trade Lebanese pounds and dollars," Zoughaib said.

"This is not how you unify an exchange rate," he added.