Dollarization in debate after local currency’s sharp depreciation in crisis-hit Lebanon

For Mustafa Kaddoura, a 65-year-old Lebanese driver, time spent in the darkness is hardly bearable.

His meager salary of 3.6 million Lebanese pounds (about 120 U.S. dollars) forced him to cancel his monthly private generator subscription, which cost 76 U.S. dollars, amid an unprecedented level of inflation and a sharp depreciation of the local currency.

Kaddoura, a chauffeur for a family in Beirut, said he could no longer afford electricity because his Lebanese pound salary had lost more than 90 percent of its value.

“I can no longer store food in my refrigerator or turn on the air conditioner in the heatwave. I am living in a nightmare, but there is nothing I can do about it,” said Kaddoura.

After the collapse of the Lebanese pound, many sectors in Lebanon started moving toward dollarization, pricing their goods and services in U.S. dollars.

Hospitals, insurance companies, household appliances stores, private schools, medicine importers, and owners of apartments and generators, among others, demand payment in U.S. dollars for their goods and services.

The majority of Lebanese have faced countless challenges as a result of dollarization, particularly those employed in the public sector who risk losing even more of their purchasing power because they are paid in Lebanese pounds.

Maha Shabtini, a government employee, had to move her children from a French school, which demanded part of the tuition be paid in U.S. dollars, to a public school where she could pay all the fees in the local currency.

“How can services be priced in U.S. currency in Lebanon when the country suffers from a shortage in the currency and employees are paid in Lebanese pounds?” she asked.

After many sectors preferred to accept and trade in U.S. dollars, the adoption of a full dollarization system in Lebanon, whereby the country would officially depend on the U.S. dollar rather than the local currency, has been the subject of discussion among economic experts.

Mahassen Moursel, a Beirut-based researcher in financial crimes, told Xinhua that the full dollarization of the economy will have a serious impact on the Lebanese, whose salaries are mostly paid in local currency.

“Since Lebanon relies heavily on imports, we have started witnessing that most people have lost their purchasing power and have become unable to afford their basic necessities after most products are priced in U.S. dollars,” said Moursel.

“This (the full dollarization of the economy) is very dangerous, since it will probably lead to rising poverty rates and malnutrition among a big portion of the population,” she added.

Due to the fact that taxes are collected in local currency and the government is unable to pay public employee wages in U.S. dollars, Moursel thought it was also impossible for the Lebanese economy to fully convert to the U.S. dollar.

“After defaulting on its debt, our country can no longer borrow foreign currency to pay for employees’ salaries in U.S. dollars,” she added.

One of the most significant disadvantages of full dollarization is that it deprives the state and the central bank of the power to influence monetary policy in the country, according to Pascale Daher, a specialist in the field of judicial supervision of central banks.

“The central bank will be in a position where it does not control the money supply and becomes incapable of making any decisions that are consistent with new developments that happen in the country,” he said.

In the event of a full dollarization system, Lebanon would be putting itself at the mercy of potential U.S. dollar fluctuations and the decisions of the Federal Reserve, which would not take into account Lebanon’s needs when deciding on its monetary policy, he added.

For his part, Patrick Mardini, president of the Lebanese Institute for Market Studies, is in favor of dollarization because he believes it is one of the very few solutions that can prevent further declines in the purchasing power of Lebanese.

He pointed out that the government could collect taxes in U.S. dollars from businesses and then pay for workers’ paychecks in the green back.

According to him, such practice would allow Lebanese to purchase their necessities with foreign currency from shops willing to sell their goods in U.S. dollars.

“The dollarization of Lebanon’s economy will help restore confidence and attract investors to the country,” he said, adding that less exchange rate volatility will attract more people to invest in Lebanon, such as buying real estates. ■

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