1/ How can we stabilize the exchange rate ? First with the basics: when demand largely outpace the offer, no matter what you do, the rate will go up. No two ways about it. So we either reduce the demand or beef up the offer.
2/ Let's start with the offer side, since attracting deposits is thankfully neither possible nor desirable, we have to rely on exports, remittances and tourism. I have discussed the first one extensively, so let me tackle the other two.
3/ Remittances are one of our biggest strength as they cover local expenses with foreign currency, they are prone to very little fluctuation (an expat will always support his family in Lebanon). We need to organize those to make sure they go through a proper chanel
4/ I have put forward a novel idea for a platform that would provide the expats with an incentive to move from cash back to transfers, more on that when it matures.
5/ Tourism should be the Ace that we should play immediately. To that effect we need to act as we always have, as our true nature dictates, and provide the best service at unbeatable prices (because of deval).
6/ This has a huge political and cultural component attached to it, i will tackle it in a separate thread. But for the sake of argument, should we have a successful summer and then Christmas season, we could easily get 2 mn visitors=~$2bn
7/ Now let's look at the other side of the equation, which we could affect much sooner : demand.
At this point it comes from 6 main sources : Importers of finished goods, imports of raw material, panic buyers, liquidators, speculators and smugglers.
At this point it comes from 6 main sources : Importers of finished goods, imports of raw material, panic buyers, liquidators, speculators and smugglers.
8/ Finished goods imports are in decline significantly as expected (i wrote on that for @executivemag) and the Covid crisis exacerbated it.
@executivemag 9/ But for the rest it should be prioritized with a eye on importing the widest possible choices of articles to keep shelves well stocked until local production closes the gap
@executivemag 10/ Raw material should be the absolute priority , every product manufactured locally and replacing an import decreases the foreign currency bill by 3 folds . Do the math.
@executivemag 11/ For the remaining 4, while some are understandable (panic and liquidators i.e: those willing to get a haircut to get their money out) and others are not (speculators, smugglers), they should be completely prevented from getting access to FX.
@executivemag 12/ The stock of USD in the banks (lollars) is far too high and will keep pushing the rate up as long as there are LBP notes to exchange. We simply need to remove its effect from the equation, which would bring demand and supply of USD to a close balance
@executivemag 13/ The BDL should restrict cash withdrawal to LBP 1 mn per person (not per account) and force the banks to issue a debit card for every client. Then gradually reduce the cash withdrawals to 500k . We need to move to a cashless economy .
@executivemag 14/ If BDL controls the inflow of USD (through the current scheme with OMT and the like, or better still through the platform i am proposing) , no one not immediately needing FX should be allowed access to it.
@executivemag 15/ From there on, banks would be able to provide transfers based on the regulated rate to the companies providing the correct docs, and to the persons needing to transfer money for education, hospitalization....
@executivemag 16/ The now greatly reduced demand for FX would allow the currency to be floated in a new crawling peg, with proper control.
@executivemag 17/ An extremely important flip side is that controlled access to the FX will also help reduce drastically smuggling and offset the losses in the formal GDP we are going to incur through devaluation
