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In the late 80ies, Lebanon experienced a hyperinflation. However the peg helped stabilize it, or so is the mainstream belief of the establishment.Kareem wrote And one last thing I forgot to mention, you can no longer carry as much cash as you want at the airport. They forbid it even if you declare to customs.
My limited financial understanding tells me that conditions are similar nowadays.
So this time to avoid a hyperinflation they are trying to control it and to stick the peg.
This is in line with what BDL calls "financial engineering". Measures which attempt to manipulate the market, investors, even numbers and statistics.
This is an excerpt from the S&P report:
I am guessing that "investors" did not show up."The government has directly issued Eurobonds to BdL--including $1.75 billion in November 2017 and $5.5 billion in May 2018--and swapped local currency treasury bills on BdL's accounts for the U.S.-dollar equivalent. We view these transactions as an accounting procedure that does not generate foreign currency until the Eurobonds are issued to investors,"
I base my understanding on articles such as this one.
Obviously I confess to only understand part of it, however I do understand enough to get an idea of the general picture, and a basic understanding that the Lebanese financial system is very inbred, with bank deposits (yours, mine) financing the government debt, which itself is in a runaway state. Some kind of bubble that is backed with little real production of value. It now seems to be bursting. The negative reports from rating agencies played a role in this, however it was just a matter of time.
The government "reforms" are too little, too late, I am afraid.
If you may allow me to get carried away a little, and kind of go off-topic, I just want to say, that the popular efforts that we see now might may also be too little too late. These are not the right conditions for change anymore. Faced with such uncertainty, the prospect of losing their way of life and even possibly starving, I believe that people will generally go into survival mode and be willing to accept measures such as military regime or begging corrupt politicians for help.
On the other hand, maybe we will all finally manage to take our future into our own hands.
Time will tell.
Regarding what will happen next on the financial level: it seems to be possible now that the government will default on the debt (something that never happened before in the history of the country).
The national debt is 80% internal debt. Therefore, if this happens, Lebanese banks could take a blow (big losses) and to pass part of the losses to the customer.
Something has to give. What, how much, and how it will affect us, we don't know yet.
