Since the beginning of the biggest financial and economic crisis in the history of Lebanon in 2019, people have been wondering how Lebanon can recover from this crisis in the absence of a sovereign, independent and effective central bank?
Therefore, officials and policy makers are keen to revitalize this vital institution (as they claim), and this is whether by issuing some decisions or confirming others, to control the transfer of funds by scrutinizing their sources and complying with the governing rules.
Until this moment, in the global economy central banks are considered an essential basis, as they maintain monetary stability and the integrity of financial systems, foreign currency values, interest rates, and monitor the monetary supply. It also regulates the banking sector and conducts extensive economic research. It is also the one that formulates monetary policies.
In developing countries (including Lebanon), central banks play a vital role in ensuring economic stability by overcoming inflation and deflation and promoting sustainable growth. Therefore, the challenges facing these countries emphasize the importance of wise monetary policies and effective governance of the central bank, by adjusting interest rates and intervening in open market operations.
On the other hand, in times of financial crises or lack of liquidity, central banks intervene to represent a haven for lending, by expanding emergency financing for troubled financial institutions. They prevent potential collapses by strengthening confidence in the local banking system and also set preventive standards to protect the interests of depositors and ensure the strength of the banking sector. (Which is not happening in Lebanon).
It also plays an important role in the financial integration process, as it has the task of facilitating access to formal financial services for deprived citizens, which contributes to reducing poverty and achieving economic development by providing financing and credit facilities to the main sectors.
Recently, the Central Bank of Lebanon has worked to maintain the stability of the exchange rate against foreign currencies, (for 89,000 Lebanese pounds per $1, compared to 1,500 Lebanese pounds per $1 before 2019). Currently, what the Central Bank is doing is extremely important for international trade and attracting foreign investments, by intervening in foreign exchange markets, (albeit in an unclear way), to manage currency fluctuations and ensure competitiveness. Also Bank of Lebanon seeks to launch the global “Bloomberg” platform in Lebanon, as an alternative to the “Sayrafa” platform (which has proven its failure and negative impact on the financial sector), “promising” to exert its utmost efforts to intervene to curb the significant rise in the price of foreign currencies, the multiplicity of their exchange rates, and achieve the highest Transparency levels.
This is what forced the Bank of Lebanon to retract the steps that led Lebanon to its crisis...which revealed weaknesses in the regulatory framework and oversight of its financial sector, which allowed risky practices and the smuggling of capital out of the country. These mistakes were also represented by unsustainable monetary policies, whether through strong interventions in the currency market or raising interest rates, which led to a severe shortage in foreign exchange reserves and a rapid decline in the value of the Lebanese pound.
On the other hand, the Lebanese administration must ensure the independence of the central bank from political influence, and this is an essential step, where an independent central bank can make impartial decisions based on economic fundamentals, long-term stability, and the public interests (instead of the personal ones), in addition, to adopt wise monetary policies that take into account unique economic circumstances.
But can this happen under the centralized system??
For me, the answer is clear, but what do you think?
The coming days should reveal the measures that will help the recovery of the Bank of Lebanon, as they promised, and restore the confidence of citizens and international investors, which was driven by a lack of transparency, which led to obstructing long-term investments and overcoming the economic downturn and its significant consequences on the gross domestic product and high unemployment rates, which intensify social and economic difficulties. Here lies the need for a “strong” central bank, as the goal of every society is to live in financial, economic, and social security, and to enjoy stability and sustainable, not temporary, growth.
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