As Lebanon descended into economic crisis, the country’s currency sank with it, officially entering hyperinflation this week. The decades-old fixed exchange rate has given way to a black market and complex web of exchange rates despite the government’s efforts to maintain the official rate.
While Lebanon’s currency, the lira, remains pegged at 1,517 to $1, licensed exchange shops are trading at a rate closer to 3,900, as instructed by the central bank. However, this rate is significantly lower than the black market rate that now stands around 8,000, but is subject to rapid fluctuation. This system has given rise to individuals selling at this higher rate amid the economic turmoil.
The devaluation of the lira has also led to hyperinflation, or when inflation exceeds 50 percent per month over a certain period of time. According to Credit Libanais, in May, food costs had risen by 190 percent while clothing costs rose by 172 percent with little indications of improving in the near future.
While many people looking to change their money go to exchange houses to buy or sell dollars, some, including store owners, have had to turn to the black market to acquire dollars desperately needed to keep their businesses in operation.
One of these individuals is Mariam, a clothing store owner who spoke with Al Arabiya English on the condition of anonymity, who started to buy dollars from people when she was unable to get them any other way.
“Now we have a very big problem in finding the dollars that we need in our trade,” she explained. “So, this is creating a major problem in our work. We don’t have any other option. If you want to find dollars, we can’t find them in any other place than the black market.”
Now Mariam and everyone that she knows who owns a store are doing the same.
Before she started buying dollars, Mariam exhausted all of her other options in order to get by. However, in the end they were unsustainable.
“Before this, we had many options,” she explained. “First we had a great amount of gold so we sold it and we tried to find our dollars in any other way. But we couldn’t find any and this was the only solution.”
In order to cope with her rising costs, Mariam also raised the prices of her products to match the 8,000 lira rate. However, because of this, people have started to buy less from her shop. While buying dollars from people has made things somewhat easier for her, if the lira continues to devaluate further, then she would have to consider temporarily closing her store.
“I can’t keep making prices according to the daily exchange [rate],” she said. “People won’t accept this. If the dollar reaches 10,000 [lira], then we will have great difficulty in continuing.”
In the meantime, she continues to buy dollars in the hopes of maintaining her business.
In order to know what rate to buy dollars at, the shop owners who buy dollars use various applications and websites to track the volatile rate. One website that monitors the various rates, ranging from the official to the “sentiment” of the unofficial rate, is LebaneseLira.org who began their work after the crisis began last October in order to “empower citizens of Lebanon and its residents to make informed financial decisions.”
Lebanese pound. (AP)
“When banks in Lebanon stopped operating as banks – withholding over $100 billion from depositors small and large – businesses and individuals naturally sought a more liquid market to operate in, thus creating the ‘black market,’” the team at LebaneseLira told Al Arabiya English.
Since October, banks have holed up depositors’ dollars, making it difficult to access funds in their accounts and impossible to transfer funds abroad.
While Mariam buys dollars at the black market rate, she argues that, while others buy dollars and sell them at a higher rate, what she does is different as she buys the dollars directly and uses them for her business. She says it is “unacceptable” that people are buying and selling dollars at the black market rate to turn a profit.
Attempts made, no solutions found
Even though the government has made attempts to crack down on black market trading to ensure that only licensed exchange shops buy and sell at the central bank rate, many are still using the higher rate. According to Mariam, even the licensed shops still sell at the black market rate.
This argument was backed up by an owner of an exchange shop who said that everyone was using the higher rate.
“Those on TV and those who say 3,000 lira is the price are liars,” Salim stated firmly to Al Arabiya English on the condition of anonymity. “We don’t work like that and those who say they do are liars.”
According to Salim, the exchange houses will open for people that they know or have dealt with in the past and then close right after.
“All of them open early in the morning for just a few people and then they close,” he explained, “They are all liars. The black market works more than us. We’re not affected by the inflation because those who have dollars are fine, but those who don’t are f-----.”
Throughout each day, the black market rate constantly fluctuates, often increasing in the morning and decreasing in the evening. This is due to the increase in supply and demand for dollars throughout the day. The more dollars that the exchange shops get, the lower the rate becomes.
“Today what was offered was 7,400. If we got more [dollars] we lower the value and we don’t know how it’s going to be every day because it depends on demand and supply,” Salim said.
Even though those caught trading at the black market rate are arrested, Mariam said that she is not worried about these potential consequences as “there is no other option” and that she cannot “wait for the dollars from my government.”
A customer wearing a face mask and gloves, is served at a counter of a currency exchange store, during a countrywide lockdown to combat the spread of coronavirus disease (COVID-19) in Beirut, Lebanon. (Reuters)
The black market rate is often viewed as what the actual value of the lira is, but Salim argued that “the dollar rate should be much, much higher,” hinting that the lira could still devaluate further. Earlier this week, Lebanon officially entered into hyperinflation.
As Mariam and other business owners adapt to the worsening situation, she suggested they form a pact to keep their shops closed until action was taken to bring down the exchange rate. But as the coronavirus lockdown in the country lifted, no one agreed because they all “have to live and that they have to earn money.”
“I wanted to talk to my friends about signing a paper that would see all of the markets in the street nearby stay closed unless something happens, like a change in the price of the dollar exchange rate,” she recalled. “But no one accepted it. People are poor here in a way that people cannot go 10 days without working. All of them are beyond the poverty line.”
In the end, she had to open her shop and, lacking dollars – like those around her – she was forced to turn to the black market system that she despises.SHOW MORE