The crisis-ridden Lebanon wants to depict its national currency as a digital currency in the coming year. This was announced by the head of the central bank, Riad Salameh. The aim of the CBDC is to restore confidence in the banking system and facilitate cashless payments.
Since the summer of 2019, Lebanon has been experiencing the worst economic crisis in its history. At that time, the devaluation of the Lebanese pound began and in the winter the Arab country was for the first time unable to meet all its foreign debt obligations. In this difficult situation, the central bank, with Riyadh Salameh at its head, sees a state-run digital currency as part of the solution to calm the situation. According to the financial news agency Bloomberg, Salameh said that such a CBDC (Central Bank Digital Currency) would be suitable to facilitate the transition process to cashless payments and restore confidence in the banking system. He named 2021 as the target date for the Lebanese pound in digital form without further details.
Background on CBDC and the crisis in Lebanon
Salameh first revealed plans for a CBDC when the economic difficulties broke out. According to the news at the time, the Lebanese CBDC was to be limited to use in the domestic market and be strictly controlled by the central bank. It is hoped that an “e-pound” will reduce the costs of banking transactions and at the same time reduce cash payments, which are often tantamount to evading tax liability.
The devaluation of the Lebanese pound began when a shortage of foreign currency became apparent. The result was great inflation, which sparked mass protests that ultimately led to a change of government. The Corona crisis further aggravated the situation in 2020. According to correspondents’ reports, it is now not even possible to ensure a continuous supply of electricity, as there is a lack of foreign currency for the import of oil and gas.
In the midst of the turbulence, Salameh has always refused to resign, saying that his country’s massive financial problems are due to politics and not the central bank. Nepotism, inefficient state enterprises and an oversized shadow market are considered reasons for the collapse that is within reach. The Lebanese pound is currently worth only a tenth of what it was 18 months ago.
Conclusion: CBDC in Lebanon born of necessity
Whether a CBDC can succeed in restarting the Lebanese pound remains to be seen. Seen from the outside, the accelerated plan seems to be due less to innovation than to sheer necessity. It is known from crisis countries such as Argentina or Venezuela that citizens are trying to secure private assets by shifting them to Bitcoin (BTC).
Meanwhile, in the Western world and China, central banks are pushing ahead with their deliberations and preparations for CBDCs at great speed. The European Central Bank (ECB), for example, recently launched a citizens’ survey on an E-Euro. In China, a regionally limited test phase for an e-yuan is already underway. The crypto scene predominantly believes that CBDCs can generally increase the acceptance of crypto currencies.
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