Hundreds of people have taken to the streets of Lebanon amidst the escalating protests as the country faces a collapse in its fiat currency.
The Lebanese pound, which is officially pegged at L£1,500 to the dollar for two decades fell to L£6,000 to the dollar. The pound started the week at L£4,000 to the dollar and fell 50% amidst panicked trading, local media reported prices as low as L£7,000 to the dollar in some places.
According to Nasser Saidi, a former central bank vice-governor, there was little the government could at this point. “This is a cash market, not your usual forex market. The central bank is no longer able to intervene.”
Demonstrators are blocking roads across Lebanon to protest against the government's handling of the crisis as their purchasing power plunged. There have also been reports of fire outside the central banks’ office in the northern city of Tripoli.
— Timour Azhari (@timourazhari) June 11, 2020
In response, prime minister Hassan Diab held an emergency cabinet meeting, attended by the central bank governor.
Hedging with Bitcoin
In Lebanon, currently there are multiple exchange rates, the union of money changers at its exchange rate at just under L£4,000 while commercial banks’ at about L£3,000. On Friday, the central bank issued a circular instructing commercial banks to sell at the union’s rate.
The government announced that it would take steps to lower the exchange rate while President Michel Aound said the central bank would inject more US dollars into the market.
The Lebanese pound has tumbled to new lows, having lost 70% of its value since October when protests began — plunging the country into its worst economic crisis in decades.
The volatile price swings were driven by four main factors: printing currency to cover fiscal deficit left by falling tax receipts, uncertainty among currency traders about government policy, the economic impact of coronavirus, and the panic in the exchange market of neighboring Syria where the impact of new US sanctions are expected next week, said Saidi.
The official foreign exchange market has about disappeared in Lebanon since last year after a severe shortage. Meanwhile, in order to stem the outflow of dollars, depositors have been cut off from their savings.
A third of the population is unemployed and about 48% of the population was living in poverty, as per the Government’s April estimate which is expected to hit 60% by the end of 2020.
Amidst this turmoil, Lebanese citizens are turning to bitcoin and cryptocurrencies which are being “embraced as an alternative to dollar assets.”
The plunging currency of Lebanon has the price of bitcoin on peer-to-peer exchange LocalBitcoins ranging from 14 million LBP ($9,200 USD) to 56 million LBP ($37,000 USD).
Bitcoin is gaining popularity and adoption especially in emerging markets that are struggling with currency crises, social unrest, and failed government policies as we first saw in Venezuela then in Argentina and now Lebanon.