Lebanon Reverses Dollar-Deposit Rule After Night of Confusion

Lebanon scrapped a new dollar-deposit rule Thursday that triggered minor street protests and meant savers lost the ability to change their money at a more favorable rate.

A day after the Shura Council, the country’s top judicial body, banned a long-standing rule allowing depositors to access their dollars at a rate higher than the official currency peg, Riad Salameh, the governor of Banque du Liban, said the decision was being revoked.

The rule “is still in effect,” Salameh told reporters in Beirut after meeting with the president and the head of the council.

The decision to ban higher-rate withdrawals had sent shockwaves across the Mediterranean nation on Wednesday, triggering minor demonstrations in Beirut. Banks stopped dispensing dollars over a year ago after a shortage of foreign currency and a plunge in central bank reserves rattled the financial industry.

Some lenders initially failed to comply with the suspension, continuing to give depositors 3,900 pounds per dollar instead of the pegged rate of 1,500 pounds. Others stopped dispensing funds for a few hours in the morning before resuming later.

The Lebanese pound has lost almost 90% of its value since August 2019 and is trading at about 13,000 to a dollar on the parallel market. Authorities have kept the decades-old peg for key purchases of wheat and fuel. Some food items are sold at the 3,900-pound rate while the rest is priced at the black-market rate. The central bank has repeatedly asked authorities to remove the subsidies to shore up reserves.

Thursday’s about-turn underscores how Lebanon, in the absence of a functioning government, is struggling to achieve policy coherence after almost two years of financial turmoil. Talks with the International Monetary Fund for a $10 billion bailout are on hold as authorities seek to enact reforms.

Lebanon defaulted on $30 billion of Eurobonds in March of last year and a reform program fell through after the central bank, local lenders and some lawmakers said it placed too much of a burden on the financial sector. Almost 70% of bank assets are parked at the central bank, which also holds the country’s Eurobonds and most of its local-currency debt.

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