Transfers through non-banking institutions: Will they be paid in dollars again?

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Leah Al-Kazzi –

The Governor of the Banque du Liban, Riad Salameh, promised to discuss the proposal to pay the money transfers through non-bank financial institutions in dollars to their owners, after he had restricted their withdrawal to the Lebanese pound. The proposal would calm the financial markets and re-trade in hard currency within the country. Will the central bank of the Bank of Lebanon agree?

Before traveling to Switzerland last Tuesday, the office of the Governor of the Central Bank, Riad Salama, landed a request: to repay remittances received from abroad – via non-bank financial companies – in dollars. The governor was in a hurry, but he promised to include the proposal on the agenda of the Central Council of the Banque du Liban (which includes in addition to Salama, his four deputies, the government commissioner at the Banque du Liban and general managers of the ministries of finance and economy) next Wednesday. A quick reading of the request, Salameh considered that “it is not okay to make payments in hard currency, but he wants to discuss the idea in all its aspects”, according to informed sources adding that “it is among Salama’s concerns that people intend to re-exchange the dollars they receive and trade with them.”

The “problem” started on April 16th, with the intermediate decision number 13220. On that day, the governor of the “Central” found in front of him only the expatriate money sent through financial institutions (“OMT”, Western Union, Cash United …) to enhance the account Foreign currency reserves. As a result of the banks ’actions to prevent the withdrawal of dollars from the accounts, the“ arbitrariness ”that they practice on the“ fresh money ”accounts from abroad, and the continuous bleeding in the reserve account with the“ Central ”, he issued a circular stating:“ Paying the value of any electronic cash transfer in foreign currencies and coming to it From abroad in Lebanese pounds at the market price. And to sell from the special unit established in the Directorate of Cash Operations at the Bank of Lebanon foreign currency resulting from the operations referred to. The payment was made according to the “market price” determined by the “Directorate of Monetary Operations” established by Salama, and that day amounted to 3,625 Lebanese pounds to the dollar. It is true that there is no country in the world that pays the value of remittances without its local currency, but in Lebanon a safety step did not come in the context of “reform”, but in the context of “robbery” of expatriate money after the “central”, in cooperation with Lebanese banks, squandered the dollars of depositors. He did not want to trade any dollars in the market outside the banking system. His ready argument is that he needs this money to finance the basic import basket.
The circular of April 16, was not the first of its kind. On January 14, after expatriates and people from abroad refrained from transferring funds through commercial banks, Safety Circular No. 514 addressed to non-bank financial institutions to pay transfers to their owners in Lebanese pounds at a price of 1507.5 pounds per dollar. It was somewhat “acceptable” for clients, because the difference was not so great a day between the official exchange rate and its price in the parallel market. Soon, changes began in the world of cash, and the lira lost a lot of its value, and the “black market” began to control the exchange rate, which led to a low number of those who transfer their money through non-bank financial institutions at a high rate. Salama found himself obliged to amend the circular, and to re-ask the remittance institutions to make payments in foreign currency. Currently, the same scenario is repeated.

Before the issuance of the April 16 circular, financial transfers to Lebanon through non-banking institutions were estimated at $ 150 million per month. The figure found safety “tempting” to boost its reserves. And follow-up sources say, “The governor considered that the aim of issuing Resolution 13220 is to finance the food basket announced by the Ministry of Economy.” The price of the dollar in the parallel market «was at that time ranging between 3800 and 4000 liras, so non-banking institutions could persuade those dealing with them to take money in pounds and use the money exchange to convert them to the dollar if they wanted to, without losing much of their value», because the payment was made on The basis of an average amount of 3,625 Lebanese pounds. This factor, in addition to the fact that the decision coincided with the month of Ramadan, “contributed to the lack of a decrease in the value of remittances.” But after the black market became without any controls, and the exchange rate reached 10 thousand pounds, “the value of the transfers began to gradually decrease, until it finally reached the limits of 25 million dollars per month.” With expectations that remittances will decrease more and more in the absence of any confidence factors, and there are no market controls. The verse was reversed, and the purpose of the intermediate decision number 13220 was neglected. The value of the transfers does not allow the financing of the food basket or the strengthening of the reserve account, on the contrary, it contributed to the drying of the monetary mass in hard currency in a country looking for how to attract it. From here, the proposal to pay the remittances in dollars came, “Perhaps this step will relax the market and contribute to reducing the exchange rate on the black market,” according to the sources.

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