Lebanon's pound hits new bottom, ahead of Riad Salameh interrogation

Lebanon’s currency fell to another historic low against the US dollar on Tuesday, on the eve of central bank chief Riad Salameh being summoned to appear before visiting European investigators. 

Lebanese media outlets reported that the rate fell to 100,00 pounds to the dollar, down from 80,000 last month. The website Lira Rate said the pound is trading at 99,500 to the dollar.

AFP also reported on Monday that Salameh "has been summoned to appear" at 10:00 am local time on Wednesday before investigators from France, Luxembourg and Belgium regarding a probe into his personal wealth. 

Background: The Lebanese pound, aka the lira, has lost more than 90% of its value since 2019. The crisis has been in the making for years. Starting in 1997, the Lebanese pound was pegged to the US dollar at a rate of 1,507 pounds to the dollar. The rate on the street corresponded to the official one. Lebanon is heavily dependent on imports, and relies on US dollars for this as well as the fixed exchange rate. 

However, Gulf investment in Lebanon as well as remittances from abroad began to decrease in the mid-2010s amid the Syrian civil war. This was in part due to Gulf concerns about Iran’s influence in Lebanon via Hezbollah. The decrease in investment and remittances led to shortages of US dollars. 

Lebanon’s central bank, Banque du Liban, instituted a complex “financial engineering” scheme in 2016 to address the liquidity crunch that has been widely described as a Ponzi scheme. 

The central bank’s efforts failed and private banks ultimately began to restrict dollars. The current crisis began in 2019 when a proposed tax on the use of WhatsApp led to widespread protests. The shortage of dollars has caused the pound to plummet on the street since then, and there are now multiple exchange rates in the country. 

In February, Banque du Liban lowered the official exchange rate to 15,000 to the dollar. This remains well below the rate on the street. 

The International Monetary Fund, the United States, France and others are unwilling to provide significant aid to Lebanon until the government institutes corruption and governance reforms. 

Relatedly, Salameh, who has run the central bank since 1993, is accused by European authorities of embezzling hundreds of millions of dollars out of Lebanon.

Why it matters: The devaluation of the currency is compounding Lebanon’s misery amid the economic crisis. Many businesses are now pricing in US dollars due to the pound’s continuous fall. 

The money Lebanese do have in banks is nearly impossible to access due to capital controls. There have been numerous armed holdups of banks for this reason since last year. Last month, a group of police stormed a bank in the southern city of Tyre to get their own money out.

Banks went on strike again this week, having previously closed in February in demand of even stricter capital control laws. 

The Lebanese news outlet L’Orient Today reported this week that suicides are on the rise in the country due to the economic crisis.