'Point of no return': Lebanese question the value of their currency

Using the pound is like being forced to invest in a stock that everyone knows will lose

A clerk counts Lebanese banknotes at a currency exchange in Beirut. AFP
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Ziad, a grizzled, cantankerous taxi driver of retirement age, was at the end of his rope on a Wednesday morning as he drove through the Beirut congestion.

When he started his day, 73,000 Lebanese pounds made one US dollar. By mid-morning, the currency had devalued by an additional 4,000 pounds to the dollar.

Meanwhile, petrol prices had gone up, and some stations stayed closed for the second day in a row, fearing market losses.

Legally, consumers must pay for fuel in Lebanese pounds, also called the lira, but importers and petrol station owners must purchase it in dollars. With the lira plummeting against the dollar on a near-daily basis in recent weeks — in comparison to its usual steady but ambling descent — importers and sellers risk losing money.

In other words, Ziad could not find anywhere to fill his tank.

Even if he did, with taxi fares collected in Lebanese pounds that will inevitably devalue tomorrow, he could only afford a partial top up.

Adjusting to the currency's rapid decline has become a matter of routine for Lebanon’s residents, as they navigate the hardships caused by the economy's seemingly endless plunge. The small Mediterranean country — facing one of the worst economic crises in modern history — is on the brink of collapse. The cracks in the state’s facade have become chasms amid political power struggles.

Ziad turned on the radio “to check on the exchange rate, God knows where it is now”.

In Beirut, the newsreader announced, roads were being blocked by protesters decrying living conditions. In Tripoli, gunmen prowled the streets and fired into the air to force shops to shut as a form of protest against Lebanon's economic plunge.

Ziad’s mood grew more sour with every news item, knowing that coming days promised worse.

“This is absurd,” he grumbled at the wheel. “It’s chaos.”

Prices change several times a day

By Thursday morning, the dollar was worth 80,000 pounds. Authorities, seeking to shift responsibility, continued to crack down on money exchangers, accusing them of speculating against the country’s currency. Commercial banks, on the tenth day of an open strike, stayed closed: transfers remained halted, ATMs remained empty. Frustrated depositors attacked and set fire to the entrances of at least five Beirut banks, then vandalised the home of the head of Lebanon’s banking association.

Otherwise, life carried on. Lebanon’s workforce persevered with their work, making numerous and by now routine calculations to protect their depreciating livelihoods.

“I buy everything in dollars, so I price everything in dollars,” said Hashem Al Zoghby, gesturing to a display of motorcycle parts on his wall. “And I try to get my customers to pay in dollars, too.”

The 22-year-old owner of a motorbike repair business said he was reluctant to accept pounds as payment because his profit would instantly devalue — but he has little choice.

“It’s meaningless. Just a wad of papers,” he said of the national currency.

But many people — such as taxi drivers, restaurant workers, delivery drivers and public sector employees — have little choice but to pay with pounds because that is the currency in which they get paid.

Like most business owners, Mr Al Zoghby has established a parallel pricing system. Items have set dollar values, which are converted to Lebanese prices that are slightly above the market rate. The same system is used by supermarkets, retail stores, and restaurants.

“If the dollar is at 80,000, then I price items at 85,000 to the dollar,” he explained. “If the rate goes up, the price goes up with it.”

On days that the currency fluctuates drastically between one hour and the next, “I have to adjust prices several times a day to make a profit. However small.”

At the end of every working day, he immediately exchanges his Lebanese earnings for dollars in order to ensure that his income maintains its value.

No faith in economic recovery

“The pound is on life support. It’s done,” said Mike Azar, a former economics professor at Johns Hopkins University. “It’s just a conduit between people and dollars.”

The Lebanese currency has lost more than 98 per cent of its value against the dollar since the start of the country’s financial collapse in 2019. The lives of Lebanese have come to revolve around the pound's fluctuation and money exchangers, while economists say the currency may be beyond saving.

“It's not a currency you can store value in,” Mr Azar told The National. “You can’t transact in it. You have to change prices every hour. In what way is this a currency?”

The state — barely functioning with no president and without a fully empowered government or parliament, facing a severe liquidity crisis, and no closer to enacting long-promised economic reforms — has become an absent entity, doing little more than updating petrol prices and issuing decrees to temporarily slow the currency’s plunge.

The chaos resulting from the currency crisis has boiled over. Markets are in a constant state of disorientation. Ordinary people are caught in the middle, losing money regardless of whether they’re paid in pounds or dollars.

They shop blindly: supermarket prices change daily, if not several times a day; price displays are often missing from the shelves. In malls, shops no longer display prices on tags; instead, customers must ask sales assistants about the price of each item. In the streets, taxi drivers and passengers argue over fares, neither wanting to lose more than they have already lost. Protests and road blocks erupt daily, further inflaming tensions, as do the public sector strikes, the bank strikes, the general labour strikes, the occasional bank hold up, and the total state paralysis.

Lebanese pounds turned into fashion accessories — in pictures

Meanwhile some public sector employees make the equivalent of $50 a month in Lebanese pounds — about as much money as it takes to fill up the tank of a Kia Cerato. Two thirds of the population live in poverty. Their deposits remain trapped in commercial banks, which limit the withdrawals and disperse them at an exponentially devalued rate.

The nation continues to be overly reliant on imports while exporting little, widening a severe trade deficit which the state’s central bank plugs by using its own rapidly dwindling dollar reserves.

“We've crossed the point of no return, where it is not possible any more to save the lira as a functional currency,” said Mr Azar. “For it to be used as a currency you need to convince merchants to price in it, for people to put their savings in it, and then for them to put it in Lebanese banks.”

A difficult task, given that Lebanon's residents have lost faith in the state, its financial institutions, its judiciary, and its currency.

The local currency hurtles like a runaway train, losing relevance with every passing day. The state has done little to stem the economy's creeping dollarisation, Mr Azar says, beyond enacting ineffectual stopgaps.

“At this point, even if the government woke up tomorrow and said, ‘we enacted reforms, we restructured the banks, and we have an IMF plan’ it won’t be enough to convince people,” he said. “They’re not going to forget the hardships they’ve had over the last three years.”

'I'd never bet on the pound'

In the span of a day, the fare for a shuttle van between the commercial district of Hamra and Beirut’s southern suburb of Dahiyeh, considered one of the most affordable forms of transport, went up from 40,000 pounds to 50,000.

Shadia Zgheib’s employer gives her a set transport allowance, but the pound’s daily depreciation means it is no longer enough. She must pay the difference in the cost of getting to and from work out of her own pocket.

Her salary is $150 a month.

“But it’s not a real $150,” she said. “It’s paid to me in Lebanese pounds according to the exchange rate that day.”

I basically lose money as soon as I get paid
Shadia Zgheib

“I basically lose money as soon as I get paid,” the Ms Zgheib, 20, told The National from her seat in the first of three vans needed to get home to the mountain suburb of Choueifat. “On top of that I have to pay to get to and from work every day. And that’s before I pay all my necessities.”

To minimise her losses, she too changes her salary into dollars as soon as she gets it. But even here she takes a loss, as money exchanges will sell her dollars at higher than market rate, so she usually gets only about $147.

Still, it is better than keeping her money in pounds, she said.

She only changes her precious dollars back into pounds a little at a time. There would be little point in exchanging more because within a day the equivalent of $100 could become worth $99 or less, and even less the day after.

“I’d never bet on the pound staying stable for too long, or gaining value,” she said.

By Thursday night, the exchange rate had fallen to 82,000 pounds to the dollar. Demonstrators burned tyres and closed roads — by now a customary response to the pound's depreciation. Next week, it will likely be worth less.

Updated: February 20, 2023, 2:32 PM