A money exchange vendor displays Lebanese pound banknotes at his shop in Beirut, Thursday, Aug. 16, 2018. (The Daily Star/Mohammad Azakir)
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The Central Bank's high interest rates that keep money flowing into banks are increasing risk within the financial system and strangling an already depressed economy.The Central Bank last hiked interest rates at the end 2017, by 2 percentage points in response to the crisis caused by Prime Minister Saad Hariri's resignation, later rescinded.But almost two months ago banks began telephoning customers asking if they had foreign currency – locally or abroad – they could deposit to earn interest rates of up to 15 percent on five-year term Lebanese pound deposits.Banks convert customers' cash into local currency and deposit the dollars in the Central Bank which, a number of complex operations later, gives the banks even more attractive returns."The situation of banks has become fragile, vulnerable to the situation of the public sector," said Toufic Gaspard, an economist and former adviser at the International Monetary Fund in Washington.He said half of the banks' balance sheets are deposits at the Central Banks.
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