Ajaka: the lira, which is supposed to serve the economy, is no longer capable of this task

The unification of the exchange rate of the lira against the dollar, based on the abolition of the plurality of rates adopted by the Bank of Lebanon, formed the focus of the meeting held last Monday between the head of the caretaker government Najib Mikati and acting governor of the Bank of Lebanon Wassim Mansouri. Yesterday, the Bank of Lebanon announced the raising of the exchange rate on the "Sayrafa" platform to LBP 89,500 per dollar, which makes it equal to the black market rate.

Professor of Economics Jassem Ajaka, via the "Akhbar al-Yawm" agency, points out that the unification of the exchange rate is through reforms, explaining that the currency reflects the wealth of the country, and therefore it is assumed to print the currency as much as the economy needs, and when the print becomes larger than that need, its value decreases.

Ajaka points out that monetary policy means translating economic growth into printing money or withdrawing it according to reality, and here the Central Bank uses the interest tool, raises or lowers it, according to the need to withdraw money from the market, but what is happening in Lebanon is completely different, because the use of the interest tool requires an active banking sector.

Ajaka recalls that in an earlier period, the Banque du Liban resorted to Circular 161 to withdraw lira from the market and replace it with dollars, but after the suspension of this circular, the Banque du Liban no longer has the ability to intervene directly in the market, it only gives salaries to employees in dollars and buys dollars in favor of the state from the market.

How is it possible to absorb the monetary mass? Ajaka says: this is done by the Lebanese state, which has imposed and is moving to impose more taxes, knowing that the state puts these funds in its account at the Bank of Lebanon, which holds the number 36, with these funds the Central Bank replaces them with dollars in the market, but this is not a natural action of the economic machine.

As for the stability of the exchange rate, Ajaka describes it as artificial, explaining that it has been invariable for a while for two reasons: First, there is a certain political side that has controlled speculators on the black market. Secondly, last March, when the dollar reached the ceiling of 143 thousand, the Bank of Lebanon absorbed the lira from the market, which became a commodity, and not a currency that serves the economy, and what also helped in this was the dollarization of the economy, which also contributed to the withdrawal of the lira from the market.

Here, Ajaka considers that the lira, which is supposed to serve the economy, is no longer able to perform this task, and all this is due to the monetary policy, whose task is to pump the lira into the market to serve the need of the economy or withdraw the surplus in order to maintain the value of the currency, repeating that this role does not exist at the moment.

Noting that the basic elements for the unification of the exchange rate are not available, Ajaka stresses that this unification needs several conditions, the most prominent of which are:

- Border control and preventing the continuation of smuggling;

- Approval of capital control, which leads to adjusting the size of the cash mass in lira and dollars;

- Restructuring the banking sector;

- The state should draw up a budget in which it determines the need for the dollar;

- Restructuring the public sector, where wages consume a large percentage of the state budget, knowing that this spending is in dollars because its value in the Lebanese currency is high, and it negatively affects the exchange rate.

Ajaka concludes by saying: if the exchange rate is liberalized on the "Bloomberg" platform, speculation cannot be stopped in any way, because Bloomberg is an international platform open to everyone, whether at home or abroad, and therefore speculation on the Lebanese pound becomes very large.