Inflation and Currency Collapse, Marred Lebanon is a Breeding Ground for Bitcoin
- Violence in Lebanon is escalating as protesters burn down banks.
Angered by the collapse of the country’s currency and spreading economic upheaval, a broad anti-government movement has been reignited that had subsided with the coronavirus outbreak.
On Monday, demonstrators set fire to three bank branches, attacked several ATM machines, and pelted rocks at security forces. As such, banks in the city will shut down until further notice, the Association of Banks said.
Exactly what happened during the 2001 Corralito in Argentina. Good money withdrawals suspended, only bad money remains available (yet is also rationed). https://t.co/fvtZQbtmYu
— Tuur Demeester (@TuurDemeester) April 28, 2020
Bitcoin Fixes This
Lebanon is facing its most severe economic crisis in decades which has been worsening since September. In October, hundreds of thousands of protesters took to the streets but then the coronavirus led the already shaky businesses to shut doors, putting people out of jobs.
Fears regarding savings to be wiped out by a fast depreciating fiat currency which is further hit by inflation is now rising among the public.
The Lebanese pound has lost three times its value since October. Currently, there are at least five valuations for the currency, all different for foreign exchange dealers, incoming transfers, and rates offered by banks.
As the pound collapsed, anger towards banks gained momentum. Prime Minister Hassan Diab criticized central bank governor Riad Salameh. Salameh who has been on governor post since 1993 implemented policies like having banks transfer customers' dollars to the central bank to shore up the foreign currency reserves of the country.
Dollars that are used in everyday transactions are in shortage resulting in the government defaulting on its debt for the first time. Crash in their local currency means they are unable to pay for imports while banks have stopped giving businesses short-term loans.
Inflation in the country has reached 50 to 60% compared to 5% in 2019. Jad Chaaban, an economics professor at the American University of Beirut said,
“We have an economic recession that was coupled with hyper inflation; people lost their purchasing power; poverty increased dramatically. So people were just fed up and they went out on the street.”
And this is where bitcoin comes – a deflationary asset with no central authority to control it and which is unseizable.
Bitcoin – a “rising star within global currencies”
The world’s leading digital currency might have been volatile in the past month and underperformed many digital asset YTD but not only it may be a good investment in USD terms, but a better investment for international investors.
According to Jeff Dorman, Chief Investment Officer at Arca, the more appropriate title for Bitcoin is the “rising star within global currencies.”
This non-government backed digital currency outpaced the likes of ZAR, MXN, EUR, GBP, and CAD.
And Lebanon where the local currency keeps on crashing, “This is the kind of situation where “store of value” makes more sense to me,” tweeted Neeraj Agrawal of Coin Center.
“Yes, Bitcoin is volatile and most stablecoins have counterparty risk. But at least you can hold and use them yourself. Storing value in the bank didn’t help much. That has got to be worth something,” he added.
Buy bitcoin and save your life and freedom literally at this point! This is absurd…
This is not the Lebanon I was born and raised in, enough tyranny…
— T (@Thomssmn) April 27, 2020
Already, Lebanese are embracing bitcoin as the country implies capital controls. In February, there were reports that people are increasingly turning to buy gold, jewelry, cars, real estate, and bitcoin.
“Bitcoin is protected by mathematics, fiat [traditional] currencies are protected by governments. Which do you trust?” said Simon Tadros, a bitcoin trader and CFO of a web development firm at that time.
A massive difference between the market value of Lebanon's local currency and the official peg has the prices on Localbitcoins going haywire.
The commission on bitcoin transactions that involve physical banker's cheque verified by Lebanon's central banks is also very steep — 25 to 40%.
Instead of exchanges, these bitcoin transactions are actually taking place on popular messaging apps like WhatsApp and ‘over-the-counter' (OTC) as such no real, exact data is available.