Salameh Wants to 'Unify' Capital Controls, Not Slap New Ones

Central Bank Governor Riad Salameh on Sunday clarified that a letter he sent to caretaker Finance Minister Ali Hassan Khalil was aimed at “unifying” capital controls in the country rather than imposing new restrictions.

Salameh explained that his request seeks to “regulate” the controls that the Lebanese banks have imposed on depositors.

The governor pointed out that he wants to “unify them to guarantee that they are being implemented fairly and equally on banks and clients.”

A liquidity crunch has pushed Lebanese banks to limit dollar withdrawals and transfers since September.

This has forced depositors to deal in the plummeting Lebanese pound, which has lost nearly two thirds of its black market value against the greenback for the first time since it was pegged at 1,500 to the dollar in 1997.

Although no formal policy is in place, most banks have arbitrarily capped withdrawals at around $1,000 a month, while others have imposed tighter restrictions.

With ordinary depositors bearing the brunt of these measures, bank branches have transformed into arenas of conflict.

Fistfights, shouting and tears have become more frequent, as cash-hungry clients haggle tellers to release money trapped under informal capital controls.

For decades, Lebanon's commercial banks have been the main conduit of foreign currency entering Lebanon, via deposits from investors and the country's wide-reaching diaspora.

But a severe slowdown in foreign currency injections has hampered dwindling reserves in a highly dollarized economy where the Lebanese pound and the greenback are used interchangeably in everyday life.

In November, two credit rating agencies downgraded Lebanon's top banks further into junk territory, citing liquidity pressures.

In a report that same month, the Bank of America said Lebanon's foreign exchange reserves could run out by the middle of 2020 if they continue to plummet quickly.

With no fresh currency coming in from outside due to increasing capital restrictions, "time could be rapidly running out," it warned.

Amid the depletion of foreign currency, dollar-hungry banks are now "trying to transfer their losses onto the public," said Sami Halabi, director of the Beirut-based research and policy firm Triangle.

By trapping dollar savings, banks are increasingly forcing the public to deal with the plummeting Lebanese pound, in what experts are calling a de-facto haircut.

The restrictions have sparked panic in debt-ridden Lebanon, where protesters are demanding the removal of a political class they deem incompetent and corrupt.

As demonstrations enter their third month, protesters are increasingly targeting banks, which they say are robbing people of their hard-earned savings.