Today, the curtain falls on Riad Salameh’s tenure at the helm of Lebanon Central Bank, where he was considered one of the longest governors in the world, lasting thirty years.
However, the debate on the central bank position will remain wide open due to the countless deliberations around it.
Many failures have been recorded in recent years, despite achievements of the last decade, when Salameh was heralded at one point as best central governor in the world, becoming the first Arab central bank governor to ring the opening bell at the New York Stock Exchange in 2009.
There is no question that Salameh’s mandate at the helm of the Banque du Liban can be divided into three distinct phases:
– The first phase extends from 1993 to 2014, when the Banque du Liban (Lebanon’s central bank) adopted a policy of fixing the exchange rate, and during which time Lebanon witnessed stability in the exchange rate of the lira, and was key was in light of the political, security and social instability that Lebanon was experiencing.
Thus, monetary stability brought a kind of reassurance that allowed Lebanon to attract capital, invest and achieve growth and economic expansion.
This successful stage for Lebanon’s economy enabled the country to attract capital and foreign direct investments.
The second phase was between 2015 and 2019 when capital outflows from Lebanon began. Banks began to feel that they were unable to finance the deficit as they once did by subscribing to treasury bonds. Deposit growth became less than deficit growth, and half fo which was derived from interest.
In 2015, banks decided not to subscribe to treasury bonds because they no longer had confidence in the Lebanese government and its ability to repay its debts. This led to a dispute between banks and the government, which was pressuring the banking sector to subscribe to its bonds. This dispute ended when the Central Bank Governor intervened at the time, proposing financial engineering that banks do not hold treasury bonds issued by the Ministry of Finance, but rather put their money in the Central Bank, provided that the latter lends to the government. This was the turning point in monetary policy from conservative monetary policy to unconventional financial engineering.
In fact, these architectures postponed the crisis and did not solve it, and the proof was a full-fledged eruption of the crisis in 2019.
The third phase began in 2019 when something new occurred with the beginning of printing huge amounts of local currency as a result of the failure to implement the reforms that were required of Lebanon. In other words, the Banque du Liban printed local currency to pay banks that deposited the bulk of their funds with it, as the central bank returned the money in Lebanese pounds to banks and their customers.
This phase witnessed a significant increase of the lira in circulation and even more important collapse in the exchange rate of the local currency.
It is precisely this stage that the Lebanese are currently experiencing.
But what comes next?
Nothing is clear except that the first deputy governor of the Banque du Liban, Wassim Mansouri, who refuses to assume the role of governor as stipulated in the Monetary and Credit Law, will resign, while the second deputy governor, Bashir Yakzan, announced that he is ready to take this position if the first deputy governor is hesitant or unwilling to take over the governor’s place.
The Ministry of Justice announced it is “preparing to submit a request to name a temporary director before the State Shura Council, in light of the developments that may occur during the next two days, and to avoid any vacuum that affects the central governance of the Banque du Liban, and to secure the functioning of the financial and monetary facility and policy.”
Deputy Prime Minister Saadeh al-Shami stressed on Thursday that “the deputy governors of the Banque du Liban have no choice but to assume his (Salaemh) duties after the end of his term this month, and following a failure to appoint a replacement in a country ravaged by multiple crises.”
Chami stressed in an interview with AFP “the need to appoint a governor for the Banque du Liban in consultation with all political parties,” stressing that there is “difficulty because the conditions are not ready to appoint a new governor within a week”.
These developments indicate that the vacuum will be the controlling factor at this stage, especially since the Cabinet failed to meet to appoint a new (central bank) ruler, to draw a key parallel to the large vacuum in the position of the presidency of the republic.
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