Lebanon central bank vice governors propose moving to floating FX rate by September

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The vice governors of Lebanon’s central bank have proposed lifting the longtime peg on the country’s local currency and moving to a managed float by the end of September, according to a copy of their proposal seen by Reuters on Thursday.

The Lebanese pound has lost more than 98 percent of its value on the parallel market since an economic meltdown began in 2019. In February, the central bank devalued the official rate from the decades-old peg of 1,500 to the U.S. dollar to 15,000.

On Thursday, the vice governors of Lebanon’s central bank met with a group of parliamentarians and proposed moving to a “managed floating” system altogether.

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The document said the bank would “commit to setting the rules and regulations to move exchange rate into a floating system by end of September 2023 with the ability to intervene when necessary.”

It also proposed setting up a new electronic platform for foreign exchanges, but said the bank would continue to buy US dollars in the market when possible to avoid leaning on reserves to prop up the pound.

Central Bank Governor Riad Salameh oversaw the country’s pegged currency during his 30-year tenure, which is set to expire at the end of the month.

Without a named successor, the first vice governor is set to take over from Salameh, alongside the three other vice governors.

One of them, vice governor Salim Chahine, told Reuters earlier this week that the bank was planning to phase out the controversial exchange platform known as Sayrafa once Salameh leaves office.

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