Khazen

 lebanon digital currency

by By Tina Abou Rizk — bytheeast.com — Can the Banque du Liban really find a good solution to extinguish all the criticism? As part of a broader push to combat the financial crisis that has engulfed Lebanon, the country’s central bank aims to go high tech by adopting a digital currency. What’s in it for Lebanon? In 2021, Lebanon’s central bank plans on launching a new digital currency to combat the parallel economy as well mitigate issues arising out of the coronavirus-induced Covid-19 financial crisis that has piled on more pressure to Lebanon’s massive debt-piled economy. Addressing a gathering of officials, central bank governor Riad Salameh stated, “We must prepare a Lebanese digital currency project” as a means to shore up and build confidence in the country’s banking system. “As for the monetary supply in the Lebanese market, it is estimated that there are $10 billion stored inside homes,” reported state-run National News Agency quoting Salameh as saying. He went on to add, the digital currency project is scheduled to be launched in 2021 and is targeted at introducing a cashless economy and add resilience to the country’s financial system in order to support, strengthen and enhance the flow of money that flows in the local economy as well as remittances from abroad.

Much of Beirut’s foreign exchange comes from remittances from the country’s global diaspora. Case in point, in 2019, personal remittances represented nearly 14% of the country’s gross domestic product, according to a report from the World Bank. In 2004, it was as high as 26.4%. Lebanon will maintain its gold reserves as a hedge against a a turbulent market, said Salameh. In the event of a demand for liquidity, the central bank could liquidate its bullion on the forex market for immediate relief. “Lebanon doesn’t have any natural resources and we have to keep the gold because its an asset that could be liquidated in foreign markets if we face an inevitable, fateful crisis,” said Salameh to the state-run National News Agency. Incidentally, the plan to introduce a digital currency was in the pipelines since some time with Salameh unveiling the plan in mid-2019 that the monetary regulator was working on the project.

The concept of digital currency After nearly a decade following the introduction of the concept of a digital currency, many financial institutions, including major central banks, are now increasingly embracing the concept and are actively researching and testing real-world scenarios. While a couple of smaller economies have launched their own version of digital currencies, China is the only major economy to complete the development cycle and has initiated plans to launch its own digital currency. Much like Lebanon, other struggling economies are also moving towards launching their own digital currencies. Venezuela, a country with run-away hyper inflation, has launched an oil-backed digital currency to circumvent international sanctions. The venezuelan government is now aggressively pushing to mainstream, increase traction and boost wider adoption of its digital currency.

With Lebanon’s economy facing a dire financial crisis, with the ties of private banks with the Lebanese government adding more fuel to the fire and with Beirut defaulting on its debts earlier this year in March, the financial crisis became a raging fire. However, if the Lebanese central bank sticks to its plans and introduces its own digital currency in 2021, it could potentially become the youngest currency regulator moving towards the introduction of digital central bank currency (CBDC). With the launch of a new digital currency, Lebanon could significantly increase its traction of a cashless economy, which could play a pivotal role in the turning around of its economy which is facing one of its worst financial crisis since the country’s independence in 1943. Aggravated by the coronavirus-induced COVID-19 pandemic, and the dramatic explosion at its port in August, which raised many neighbourhoods, Lebanon’s national debt has assumed gigantic proportions to 150% of its GDP making it one of the worst affected in the entire world.

Given this dire economic strait of affairs, the introduction of a cashless economy with the country’s own digital currency being the vehicle, could potentially mitigate portions of the financial mess and prepare the economy for a return to more stable grounds from its current precipice. The introduction of the CDBC is seen as one of the measures that can potentially promote a more balanced financial future with an increase in the number of citizens participating in the country’s economy and thus improve its liquidity. With the government choosing to default on its loans in March this year, the Nanking sector began to gradually alienate the government. As a result, the gap between the private and the public sector became so wide that many citizens opted to store their money at home rather than in the bank, which prompted the governor of the central bank to say that Lebanese citizens now keep more than $10 billion in cash in their homes. The launch of a digital currency could alleviate such issues. Or not.