The dollar is racing against inflation

The dollar is racing against inflation

Mohamed Wahba – Al-Akhbar newspaper – in numbers – Monday, June 21, 2021 *

Circular No. 158 promises the gradual payment of deposits on the basis of $400 in cash or “fresh,” and $400 to be paid in pounds at the price of the electronic platform (12,000 pounds currently), with half of it in cash and half of it by bank card. It sets a maximum limit for the accounts that will be treated on this basis, at about $50,000. It is true that the period of the circular was set at one year, subject to renewal. However, dissolving $50,000 into this equation needs five years and two months. In addition to this matter, the Banque du Liban will have to inject additional liras into the market resulting from the payment of deposits at a rate of 3900 liras per dollar, in application of Circular 151.

The trade-off between the two options will be available to those who will not benefit from repaying deposits by the method of circular 158, that is, those who will not be able to wait for the payment of 50 thousand dollars of their deposit over five years, while they have deposits of greater value whose value will erode rapidly. The difference between Circular 158, which allows the withdrawal of dollars in cash at a price of 12,000 pounds, and Circular 151, which allows the withdrawal of dollars at a price of 3900, is that the Banque du Liban provides each account holder with the available options; Do you want 80% haircut? More or less? Do you want to wait for more surprises?

Of course there will be more surprises. In the first month of the year, the accounts of the lowest tier of depositors, or the rest of them, will be closed. This segment has 611 thousand accounts, the owners of which own about 382 million dollars. But after five months, the accounts of the second tranche, which number 390,000, will be closed, and their owners own about $ 158 million. Within a year and a few weeks, the accounts of the third tranche of 195,000 will be closed, the owners of which own two billion dollars. Within one year, 845 thousand accounts will be closed, which represents about 73% of the number of accounts that benefit from the circular. But what will happen during this period?

In the first year, the Banque du Liban will pump about 27,000 billion pounds into the market at a rate of 2,250 billion pounds per month to finance withdrawals according to Circular 158. But it will also continue pumping pounds according to Circular 151, whose value is estimated at more than 10,000 billion pounds, at a monthly rate of more than 800 billion pounds. On top of that, the Banque du Liban will finance Lebanon’s imports of Iraqi crude oil by paying it through the local dollar, which is marketed as equal to 3900 Syrian pounds so far. It is also possible to calculate the value of the money that he will pump in order to finance the financing card and many other funds that Salama seeks to pump into the market because he addresses all his problems and losses by printing money and pumping it into the market.

Thus, this year will be one of the harshest years in Lebanon. It is true that the World Bank expected an average price inflation of 100%, but it did not expect the Salama Press to work non-stop throughout this period. What will happen is becoming clear. Printing money and pumping it into the market, at levels lower than the levels of dollar pumping into the market, will have a clear and huge impact. The price of the dollar will be stimulated against the devaluation of the lira more and more. The demand for the dollar is already starting to appear. Banks have not stopped buying dollars from the local market since the beginning of this year. It is said that banks withdraw about $70 million per month. With the start of stopping the subsidy three weeks ago, especially the permanent cessation of support for the basket of food commodities, and for agricultural and industrial commodities, about 25 million dollars per month of additional demand for the dollar entered as a main catalyst for the rise in the price of the dollar. If, on the other hand, financing the import of fuels, and a part of medicine and medical supplies, stops, the demand for the dollar will witness big jumps that may exceed $300 million per month, and therefore we will witness an acceleration in the fluctuations of the dollar price that may be very excessive.

So, on both the supply and demand sides, it will be a catalyst for the decisions of the monetary authority. This also means that the market’s ability to cover the demand for dollars will be gradually reduced to stimulate higher prices despite the injection of dollars into depositors’ accounts. It appears that the bulk of depositors, according to Circular 158, may keep these dollars in anticipation of a rise in the exchange rate, especially since they will receive cash in pounds as well.

The pumping of lira, along with the price inflation resulting from the partial or total lifting of subsidies, is a mixture of poverty and immigration, which seems to have an apparent effect for one year, but the Banque du Liban promises us that it will continue for five years if it is sincere in paying 50 thousand dollars to each bank account. This is the prevailing loss distribution path to date. No other tracks in sight. It is a path that means that the dollar price is in a race with price inflation.

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