Lebanon is angry, and for good reason
At the time of writing, 65,000 Lebanese pounds got you 1 US dollar. Today, some weeks later, the same amount is now worth 65 cents–a 35% loss of value.
What's going on?
With 96% currency devaluation in under 4 years, Lebanon joined the very select triple-digit inflation club, alongside Zimbabwe, Venezuela, Syria, and Sudan. That’s why it’s no surprise that Gallup ranked Lebanon as the second country living the most negative experiences in their 2021 report.
Hyperinflation is the inflation of a currency that is so rapid and out of control that its effects on the economy often spark civil unrest and political instability. In other words, individuals lose faith in their own currency, banks, and government.
For Lebanon, it only took 1 year for the currency to lose 50% of its value, and 3 years to go down by 98%. This is mostly due to a series of decisions from Lebanon's central bank, like printing money.
Inflation is one thing, currency volatility is another. The value of the Lebanese pound changes so much during the day that prices can fluctuate in a few hours.
Loss of savings
For four years now, banks have been imposing withdrawal limits and forcing bank accounts to convert any US dollars to the national currency. Withdrawals are limited to 6M LBP/month. Once valued at $4,000–today, it's worth 10x less.
Many people lost 90% of their savings. But those who are retired, have trusted the government, and paid taxes for decades, are now seeing their pensions and life savings disappear. Family is their only lifeboat.
Salaries, especially for public employees, have a hard time keeping up with the volatile Lebanese pound. Minimum wage was worth $675 per month before the crisis but is now a monthly salary of less than $70.
According to the UN, the poverty rate in Lebanon doubled from 42% in 2019 to 82% in 2021, with nearly 4 million people living in poverty.
The crisis also has seen tens of thousands of people lose their jobs with an unemployment rate of more than 30%, according to Lebanon's own finance ministry.
No more middle class
The middle class in Lebanon, which used to constitute the largest part of the population, has disappeared due to impoverishment and emigration. Society today is made up of the very rich or the poor, some of whom are below the poverty line.
According to the most recent reports of population change in Index Mundi, Lebanon recorded an 8% decrease in the population growth rate in 2020.
This decline in the population growth rate is mostly attributed to Lebanese people leaving the country due to the economic crisis. These migrants are highly educated and qualified, ranging from nurses and doctors to engineers and lawyers.
If Lebanon continues to export its best talent, the country will rob its youth from a bright future.
Hyperinflation is nothing new and solutions are known. One that's been tried and tested is currency substitution (e.g. dollarization). Is it a silver bullet? Obviously not, since dollarizing means outsourcing your monetary policy–and it is safe to say the US only designs its policies for its own prosperity, not for the ones using their currency. Is it a real solution for today? Absolutely.
I believe a new financial order will have to emerge. The banks and the government think otherwise, they want to keep alive whatever we had before at the expense of the savings of the Lebanese and the expense of their deposits, purchasing power, etc. But something new will emerge — we cannot go on with the old regime or the old system.
- Dr. Simon Neaime, Professor of Economics and Finance at the American University of Beirut (AUB)
Whatever happens in Lebanon, it always seems like the people are able to move on–but don't be fooled. 2020 Beirut explosion, pandemic, protests, capital control, corruption, utility shortages and now earthquakes... Lebanese have much more going on than what they'll make you believe. The smiles you see when walking down Bliss street is simply a testament of their kind nature–not what's going on in their lives.
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