The central bank on Wednesday extended Circular 161 until the end of April, but its grip on the national currency appears to be slipping, as the gap between the Sayrafa rate and the parallel market rate continues to widen.

 

First issued on Dec. 16, Circular 161 initiated Banque du Liban’s most recent intervention in Lebanon’s currency market, under which it at first increased and later removed the dollar quotas available to commercial banks. A fast-falling lira, dropping at one time to a nadir of LL33,700 to the US dollar, and political pressure from Prime Minister Najib Mikati’s government were the main drivers behind the central bank’s decision to revise the terms of the circular in mid January and remove all the quotas.

 

The mechanism of releasing unlimited amounts of US dollars in the market through banks, seemed to achieve its desired effect in January and February. The difference between the Sayrafa rate and the parallel market rate narrowed down to around 2 percent from an average of 15 percent in the preceding six months, with the exchange rate finding a footing around LL20,500.

 

However, since the beginning of this month, cracks have started to show. Financial statements published as recently as March 15 by the central bank revealed that the bank was running out of room for maneuver. Foreign currency liquidity dropped $1.5 billion since mid-December, to around $10 billion or even less according to some estimates.

 

Banking insiders have confirmed to L’Orient Today on several occasions in the past three weeks that their quotas were effectively reduced. This development forced some banks to stop serving retail clients, despite public assurances from the central bank that it had not restricted the dollar amounts available to commercial banks via the Sayrafa platform.

 

Legal pressures are also building against the BDL governor, Riad Salameh. His brother Raja Salameh remains in state custody, having been arrested by Mount Lebanon Public Prosecutor Judge Ghada Aoun on March 17 on charges of complicity in illicit enrichment. On March 21, Judge Aoun charged the governor himself with illicit enrichment.

 

The European Union’s criminal justice agency said yesterday that assets of Lebanese citizens worth around $132 million were frozen, and later German prosecutors confirmed that the above announcement was related to the investigations surrounding Riad Salameh.

 

Riad Salameh has been summoned by Prime Minister Najib Mikati’s cabinet to participate in a government meeting scheduled for Wednesday to explain matters related to financial and monetary policies.

 

There is also increasing talk of a search for a potential successor to Salameh to helm Banque du Liban, even though no formal statements have been made yet on the matter. However, speculation is rife that the successor will be chosen from among the following: Camille Abou Sleiman, who served as labor minister from February 2019 to February 2020; Jihad Azour, who is a director of the Middle East and Central Asia Department at the International Monetary Fund; and Samir Assaf, a former top banker at HSBC.

 

Transaction amounts recorded on the Sayrafa platform since the launch of the platform in June stand around $3.4 billion with 90 percent or $3 billion changing hands since Dec. 16.

 

The lira is currently trading around LL24,400 to the US dollar on the parallel market against a Sayrafa rate of LL22,050 to the US dollar.