Lebanon's central bank upholds decision to allow bank withdrawals at a rate higher than official peg

Court decision prompted depositors to queue at ATMs late on Wednesday

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Lebanese banks will continue to allow customers to withdraw their dollar savings in local currency at a rate higher than the official peg, Central Bank governor Riad Salameh said on Thursday.

Mr Salameh’s remarks followed a meeting with President Michel Aoun and the head of Lebanon’s highest administrative court, the Shura Council, which had suspended two days earlier a Central Bank circular that allowed depositors to withdraw their savings in foreign currencies at rate of 3,900 Lebanese pounds to the dollar as opposed to the official rate of 1,515.

The Central Bank’s announcement a day earlier that it was complying with the Shura Council’s provisional resolution prompted many depositors to queue at ATMs later that night to withdraw their dollars before banks acted on the decision.

But Mr Salameh reassured depositors following Thursday’s meeting that the circular remains effective since the Central Bank had yet to receive a “valid copy of the decision for implementation” purposes and after having asked the court to reconsider its position in light of “new elements” in the case.

A statement released by the Central Bank late on Wednesday said it had asked the Shura Council to reconsider its position given the circular’s important impact on “social stability and reviving economic activity”.

The Central Bank’s circular had authorised banks, which have been imposing informal capital controls since the worst financial crisis to engulf Lebanon erupted in late 2019, to withdraw their dollar savings at the 3,900 rate as the pound plummeted on the black market.

The national currency has lost more than 85 per cent of its market value since the crisis unfolded, with the dollar trading at a market rate of 13,000 pounds, effectively forcing clients to take a 70 per cent loss on their dollar deposits when withdrawing at the 3,900 rate. The suspension of the circular would have put that loss at around 90 per cent.

Antoine Sfeir, a lawyer and law professor, described Thursday’s announcement as a “gentlemen’s agreement” with no legal ramifications so far.

"The Shura Council's resolution remains binding for the Central Bank until the court issues its final ruling in the case," Mr Sfeir told The National but added that banks assume no legal liability for disbursing dollars at the 3,900 rate in line with the Central Bank's directives.

A handout picture provided by the Lebanese photo agency Dalati and Nohra shows the governor of Lebanon's Central Bank, Riad Salameh (L), during a meeting with Lebanese President Michel Aoun at the Baabda presidential palace, east of the capital Beirut on June 3, 2021. Two Lebanese associations said last month they had filed a legal complaint against Salameh, whom they accuse of fraudulently amassing a large fortune in Europe as Lebanon goes through its worst economic crisis since the 1975-1990 civil war, with more than half of the population now in poverty.  - === RESTRICTED TO EDITORIAL USE - MANDATORY CREDIT "AFP PHOTO / HO / DALATI AND NOHRA" - NO MARKETING - NO ADVERTISING CAMPAIGNS - DISTRIBUTED AS A SERVICE TO CLIENTS ===

Banks were largely empty on Thursday morning, with one bank employee telling The National that the situation was "completely normal".

That sentiment was shared by some depositors who were expecting the Central Bank to find a workaround to disburse dollars at the 3,900 rate.

Standing outside a bank branch in the neighbourhood of Ashrafieh, surgeon Milad Sabbagh said that he would rather not withdraw money from his dollar account in the coming days. "I think the central bank will reverse its decision," he told The National before Mr Salameh spoke from the presidential palace

Pascal Daher, a law professor and one of three lawyers who had petitioned the Shura Council to overturn the Central Bank's circular, had told The National earlier in the day that BDL's decisions were illegal.

“The State Shura Council’s decision is clear. Banks should issue money in the currency that it has been deposited in. Any issuance in an alternative currency is illegal, otherwise, banks are considered to be suspending payment. That’s the law,” Mr Daher said.

Such a brutal and rapid contraction is usually associated with conflicts or wars
World Bank

The latest controversy comes as Lebanon struggles to maintain vital imports of fuel and medication amid shortages in foreign currencies.

On Wednesday, the World Bank said Lebanon financial and economic crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century.

The report noted that Lebanon’s GDP plummeted from close to $55 billion in 2018 to an estimated $33bn in 2020.

“Such a brutal and rapid contraction is usually associated with conflicts or wars,” the World Bank report said, adding that the crisis has left more than half of the country’s population below the poverty line.

Hours after the report was released, Lebanon’s caretaker Prime Minister Hassan Diab warned that Lebanon was "in the heart of great danger” and urged the international community to provide financial aid "before it is too late".