Where is the dollar heading in the coming days?


Eva Abi Haider –

For the dollar to rise against the pound, it is expected that the central bank will lift the subsidies on fuel, wheat and medicines. However, the start of the dollar’s ​​move about two weeks ago in an upward trend foreshadows the worst, especially since the support is still in effect, so what will be in store for us in the coming weeks with the lifting of support ? Are there any ceilings for the dollar?

A study prepared by Omar Tammo, a specialist in banking and investment operations, based on figures issued by the Banque du Liban, revealed that the Central Bank pumped 13 thousand 180 billion and 140 million pounds from the beginning of the year until the beginning of the current month of October, which constitutes an increase in the lira currency by 125%. The volume of funds circulating outside the Bank of Lebanon (that is, printed by the Central Bank) until the beginning of October 2020 was about 23 thousand and 700 billion pounds, while the cash mass in circulation in the lira at the beginning of the year 2019 was about 5860 billion pounds, an increase of about 300%, and this explains how The printing of the pound and its pumping into the market negatively affects the exchange rate.

In the context, Tammo explained to Al-Gomhoria that the Central Bank prints pounds and pumps them into the market, while the dollar monetary mass is still the same and has not been matched by the entry of new dollars into Lebanon equivalent to the increasing demand for this hard currency, and this explains the continuous deterioration in the exchange rate. The Lebanese pound. The lira that the Central Bank prints in exchange for no foreign currency or gold to protect it and preserve its value.

He continued: The pumping of the lira in these quantities in a country that relies mainly on import negatively affects its value, so that the higher its quantity in the market, the lower its value. The scene is similar to a basket full of Lebanese pounds, which today is balanced with a single food commodity, while in the past it was balanced with a complete consumer basket.

Tamo explained that there are two main reasons behind the increase in the money supply in the market, and they are:

– Our economy has turned into a cash economy and the constant need to deal in cash, attributing this to several reasons, most notably: the decline in confidence in Lebanese banks, which prompted depositors to withdraw their money from banks in cash for fear of losing it, some circulars from the Bank of Lebanon, which allowed withdrawing dollars at the price of 3900 pounds Which means that instead of the $ 100 equal to 150 thousand, it is now equal to 390,000 Syrian pounds, meaning that there is a need to print more banknotes to cover this difference to finance the withdrawals.

– Calculating the dollar during cash withdrawals at 3900 pounds, while 1500 pounds is calculated when paying with a credit card, which constitutes a loss for the depositor. Thus, even if the depositor prefers to use the card, he is now obliged to exchange it for cash. Likewise, in the past, merchants used to pay the price of goods for the purpose of import using a bank card, but today they are forced to obtain money in cash from banks to take it to the cashier and buy dollars.

The rise of the dollar before the support?

And about his explanation of the rise in the price of the dollar against the pound in the parallel market in the recent period, from about 7200 pounds to 8600 pounds, while the dollar was expected to start an upward trend after the central bank lifted support? Tamo says: Trust in the currency plays a fundamental role in the exchange rate. The Lebanese held hopes for the imminent formation of the government, with foreign support and foreign aid in foreign currency, and the improvement of the economic situation, but the formation faltered despite foreign interventions had a negative impact on the exchange rate, in addition to all that is circulating about the Central Bank’s tendency to raise subsidies on basic commodities, which deteriorated The exchange rate will not wait until the day when the subsidy will be raised. In this negative atmosphere, everyone began to guard against the worst, as citizens will not wait for the support to be lifted to buy dollars, and this is their right, as they see the dollar as a refuge or salvation in the next bad stage, especially since all the signals are banking, financial, economic and political are negative, in addition to the continued pumping of the pound into the market .

Two paths: breakdown or improvement

In the expectations for the next stage, there are two paths: the first is bad, which speeds up the collapse, and the second is positive, which may freeze the situation before it improves, so what are the factors that might play a driving role in one of these two directions?

Tamo says: There is no doubt that removing subsidies without any rescue plan will accelerate the collapse because it will push all traders to go to the parallel market to buy dollars, which will increase demand for it frighteningly, and then pressure will increase on the value of the Lebanese currency, as there is no ceiling for the rise of the dollar.

On the other hand, the improvement in the price of the lira against the dollar requires first forming a government as soon as possible, whose top priority is reform and moving the economic wheel. This step improves the psyche of the Lebanese and freezes the rise in the price of the dollar against the pound, and if this positive trend is completed with the approval of the International Monetary Fund on a rescue plan that will pump new dollars into the market, as well as proceeding with the reforms of Sidr that are also expected to inject foreign currencies into the market and investments with what It will provide him with job opportunities … All these positive factors will lead to an improvement in the exchange rate. But to what extent can the exchange rate improve? Tamo says: The Lazar plan set the exchange rate at 3,500 pounds, to rise to 4,000 pounds later, but until now it is not possible to know the value of the currency because we do not know yet the size of the economic losses, nor the size of the losses of the Central Bank and the banks, with confirmation that these losses increased after the explosion Beirut Port and after the repercussions of the Corona pandemic, as it is not known what kind of exchange will be adopted, i.e. whether the currency will be fixed or left within a moving margin.

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