BEIRUT: The heightened tension which spilled over to the capital Sunday has prompted some concerned citizens to convert their Lebanese pound accounts to U.S. dollars, even as the Central Bank reassured that it is in full control of the monetary situation.
“There was significant demand for the U.S. dollar in some banks today, but I can’t say this was a rush,” Alain Wanna, a senior executive at Byblos Bank, told The Daily Star.
He added that the dollar traded between LL1,504 and LL1,507 and these rates are normal in the market.
“It’s true that some people switched their accounts to U.S. dollars, but the exchange rate did not reach LL1,514 and this is reassuring,” Wanna said.
The banker stressed that this conversion was so limited that the Central Bank did not intervene.
A source at the Central Bank, who spoke on condition of anonymity, said that this demand for the U.S. dollar has no impact on the country’s massive foreign currency reserves.
“We have sufficient foreign currency reserves to meet the needs of all Lebanese depositors. In other words, we [the Central Bank] can easily cover the conversions, even if all the Lebanese decided to convert their accounts to the U.S. currency, and this will not happen,” the source said.
The Central Bank has been amassing large amounts of foreign currency deposits for the past few years to use as a buffer against unforeseen situations.
According to recent data, the Central Bank has more than $30 billion in foreign currency reserves and this amount does not even include the gold reserves, valued at more than $11 billion.
Nearly 62 percent of deposits in Lebanese banks are in dollar accounts and this ratio is standard even given the relatively high interest rates on the local currency.
The source said that the Central Bank has been buying dollars in the local market to boost its reserve and this was a sign of confidence in the local currency.
Bankers did indicate that the foreign exchange trading situation could accelerate if rival politicians remain stalemated in their positions and if various militias resort to weapons to settle their differences.
“If the situation is stable then the customers will keep their accounts in Lebanese pounds, but if conditions deteriorate then the demand for the U.S. dollar will continue,” Wanna said.
He added that when the government was formed last year the comfort level among citizens improved with many depositors switching to Lebanese pound deposits because the interest rate on this currency is nearly 3 percent higher than U.S. dollar deposits.
“But when the situation turns bad some depositors prefer to switch to the dollar because this will be seen as a hedge and a type of insurance,” Wanna said.
Some bankers note that the total customer deposits in Lebanon are even bigger than total deposits in Nigeria, which has a population of 200 million and huge oil wealth.
“We have passed through worse events than now and yet we always landed on our feet thanks to the confidence people have in our banking system,” another banker said.