Lebanon’s foreign currency reserves up by 5.3 percent

Lebanon is one of the most highly dollarized economies in the world.

BEIRUT: The Lebanese Central Bank’s gross foreign currency reserves grew 5.3 percent or $1.63 billion to $32.24 billion in 2011, their slowest growth pace since 2007.

The reserves were still close to an all-time high when they reached $32.5 billion two months ago and analysts say that the Central Bank can cover nearly 80 percent of the Lebanese currency in the market.

This means that the Central Bank can easily cope with any unforeseen crisis in the future thanks to the massive foreign currency reserves.

Lebanon, which is plagued with numerous economic and political problems, has succeeded in preserving its well cherished monetary policy as orchestrated by Central Bank Governor Riad Salameh, who has insisted on beefing up the foreign currency reserves to protect the Lebanese pound.

Even those economists who have a bleak view of the economy admit that the monetary situation is satisfactory thanks to the efforts of Salameh and his team to shore up the Lebanese pound.

Despite instability in the region over the past year, most Lebanese depositors remained calm and did not make a run on their banks to convert their Lebanese lira into dollars.

The dollar peg also boosts confidence in the local currency.

A study published by Eurojournals.com showed that Lebanon is one of the most dollarized economies in the world according to the size of the country’s population.

“We documented in this study that as response to high inflation and high dollarization, the Lebanese monetary authorities had chosen in 1993 to have as intermediate objective an exchange rate anchor to control inflation, instead of inflation targeting,” the study said.

“Thus, high dollarization and high inflation led monetary authorities to fix the Lebanese exchange rate against the dollar. After that the inflation is tamed but the dollarization fluctuates in a range of 60 percent-70 percent raking Lebanon between the high dollarized economies.”

Lebanon’s foreign currency reserves even surpass those of Egypt, which currently stand at $18 billion after falling from $36 billion before the revolution a year ago.

The Lebanese Central Bank’s total assets reached $70.3 billion at the end of December, 12.3 percent higher than 2010, driven by a 21-percent increase in the securities portfolio to $11.6 billion, and an 11-percent gain on the valuation of gold reserves which stood at $14.4 billion at the end of 2011.

Lebanon has the second biggest gold reserve in the Middle East after Saudi Arabia, another factor that has boosted the confidence of investors in the future of the country.

The 9.22 million ounces of gold held by the Central Bank can’t be liquidated or sold by Salameh without the prior approval of the Lebanese parliament. Experts perceive the gold reserves as a last line of defense if Lebanon comes under unprecedented economic and political pressure.

Bankers say that the days when Lebanese citizens used to queue up in exchange dealers and banks to convert their Lebanese currencies to foreign currencies are over. The steady capital inflow and remittances that come from Lebanese expats have also helped boost cash reserves.

A version of this article appeared in the print edition of The Daily Star on January 06, 2012, on page 4.




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