Sociologie/Economie - Economie libanaise

Dollarization dilemma: will 2024 usher in lebanon's official greenback adoption?

Lebanon faces an economic crisis with the rapid devaluation of its currency, leading to a surge in dollarization and impacting food security. While adopting the US dollar is seen as a potential remedy, it poses challenges like loss of monetary autonomy. The 2024 budget introduces "Tax Dollarization," tying taxes to the dollar's rate, with uncertain outcomes for the country's struggling economy. 

Imagine this: your local currency is melting faster than an ice cube on a hot sidewalk. Suddenly, everything – milk, bread, even haircuts – starts being priced in US dollars, a currency far out of reach for most families. That's exactly what happened in Lebanon between January and June 2023, with devastating consequences for people already struggling to put food on the table. This dollarization surge, driven by inflation exceeding 280%, dealt a harsh blow to food security, according to the World Bank. As mentioned by themedialine let’s explore the everyday experience of food shopping in Lebanon: for some, it's a breeze. Dollar prices dance merrily on store shelves, leaving calculators forgotten at home. But for most, it's a frustrating tango with the Lebanese pound, a currency swirling down the economic drain. Just two years ago, dollars were a rare treasure, possessed by only 13% of families. Now, with poverty squeezing three-quarters of the population, finding those green bills feels like striking gold. The culprit? The Lebanese pound, a currency on a one-way trip to oblivion. From a dignified 1,500 to one dollar, it's nosedived to a dizzying 100,000 to one, making shopping a daily roller coaster ride. So, what's the solution? For many, it's the awkward embrace of dollarization, a foreign partner in the economic dance. It's not perfect, but it's a steadier step than the pound's wild jig. This grocery saga isn't just about food; it's a portrait of a divided country, where price tags reveal stark economic truths. It's about clutching coins that might be dust by tomorrow, yet still clinging to the hope that this economic mambo won't last forever. So, next time you pay your bill, spare a thought for those in Lebanon, navigating this economic tightrope. Their grocery lists are laced with uncertainty, but their spirit dances on, hoping for a day when stability takes the lead.

Dollarization in the balance: potential benefits and risks for Lebanon's banking system and society. 

According to the Management Studies and Economic Systems (MSES), Lebanon’s economic woes are etched in the daily anxieties of its citizens. The specter of currency devaluation looms large, eroding the value of savings and casting a pall of uncertainty over everyday life. Dollarization, the adoption of the US dollar as legal tender, presents itself as a potential remedy, promising a haven of stability amidst the financial turbulence. On the one hand, dollarization offers undeniable advantages. It would anchor Lebanon's economy to the relative stability of the US dollar, potentially curbing inflation and facilitating access to cheaper credit. This newfound economic predictability could attract foreign investment, fostering growth and job creation. Additionally, fiscal discipline would be bolstered, as the Lebanese government would be unable to inflate away its debts through devaluation. However, surrendering monetary sovereignty comes with its own set of challenges. Lebanon would relinquish control over crucial economic levers, such as interest rates and exchange rates, rendering it vulnerable to external shocks emanating from the US economy. Furthermore, access to dollar liquidity remains a concern, particularly in the post-pandemic environment. Moreover, exiting from dollarization, once implemented, is notoriously difficult, potentially trapping Lebanon in a permanent reliance on foreign currency. Ultimately, the decision to embrace dollarization is a Faustian bargain – stability in exchange for autonomy, potential growth at the cost of vulnerability. Weighing these trade-offs carefully and evaluating alternative solutions will be crucial as Lebanon navigates this critical juncture in its economic journey.

Essential goods go green: lebanese households face 100% impact of dollarization

As stated by Mercy Corps Lebanon policy changes like USD salary exchange platforms, USD pricing in stores, and discussions on dollarizing taxes signal a formal embrace of the greenback. This shift is driven by skyrocketing inflation (nearly 5,000% for LBP!) that outpaces salaries, leaving LBP-dependent households struggling. Notably, import prices seamlessly translate to LBP hikes due to a 100% exchange rate pass-through effect on essential goods, further underscoring the pervasiveness of dollarization in everyday life. The Lebanese economy stands at a crossroads, fully immersed in the dollar's orbit, balancing potential stability with the surrender of monetary sovereignty.

In conclusion, Lebanon's 2024 budget boldly steps into uncharted territory with a "Tax Dollarization" approach. This groundbreaking move aims to tie tax and fee collection directly to the ever-shifting sands of the dollar's "free-floating rate" as determined by the newly implemented Bloomberg platform. This signifies a dramatic shift away from the traditional Lebanese pound reliance and signals a potential future where the greenback reigns supreme in fiscal matters. This gamble for stability in a tumultuous economic landscape carries immense implications, promising potential relief from inflation's bite but also raising concerns about equity and affordability in a society already strained by hardship. Only time will tell if this unconventional budget proves to be a life raft or a gamble too far for Lebanon's beleaguered economy.