The Lebanese accept cryptocurrency mining
The outlook for bitcoin has changed dramatically by 2019 as the country plunged into a financial crisis brought on by decades of war and bad spending decisions; This decentralized digital currency that has no borders, and is not subject to bankers and politicians, has become a savior of what banks currently impose on withdrawals, and a haven for citizens to obtain their most basic rights, which is the purchase of daily living needs.
The situation has not changed significantly since 2019; As banks put a ceiling on cash withdrawals, deposits became debt securities, and the forced discount rate for debt increased.
In a CNBC survey with a number of Lebanese, it became clear that many of them see digital currencies as a “lifeline,” and some mine digital tokens as the only source of income until they find the right job, while others arrange secret meetings via “Telegram” to exchange Tether stablecoin against the US dollar for grocery shopping.
The deterioration of the banking system
Despite the war that lasted from the seventies until the 1990s, Lebanese banks were and are still able to compete with offshore banks such as those in Switzerland and the Cayman Islands, as an ideal destination for the wealthy to deposit their money.
Lebanese banks used to provide a certain degree of customer anonymity, and set satisfactory interest rates on US dollars; In return, the country withdrew the much-needed foreign currency to refill its coffers after the war.
Because Lebanese banks were also characterized by very low minimum balances and other advantages, and the banking system for a while worked well with all customers, they got a large cash flow, depositors watched their balances grow rapidly, and the government went into an uncontrolled spending spree of the money that I borrowed it from the banks.
This mirage of easy money led the government to put some of that borrowed money in the direction of maintaining a fixed exchange rate for deposit flows by pegging the overvalued currency.
The country has also made great strides in strengthening the balance sheet of the Central Bank “Banque du Liban” by supporting tourism and international aid, in addition to foreign direct investment from some Gulf countries, and the financial transfers that the people of the country make in the diaspora countries, pumping dollars into the artery of the economy. World Bank data showed that these remittances as a percentage of GDP peaked at more than 26% in 2004, although they remained high during the 2008 global financial crisis.
These payments have been declining since 2010 due to unrest in the region.
Meanwhile, while the government made great efforts to rebuild after the civil war, the government’s budget deficit decreased more and more, and its imports far exceeded its exports for several years.
In an effort to stave off a comprehensive economic collapse in 2016, the head of the Central Bank, Riad Salameh, decided to request bank incentives; Where people willing to deposit US dollars got astronomical interest on their money, which proved to be convincing; Especially at a time when returns elsewhere in the world have been relatively disappointing.
After that, those who deposited US dollars and then converted them into Lebanese pounds got the highest interest.
Then the era of easy money came to the brink in October 2019, when the government proposed a wave of taxes on everything from gas to tobacco to WhatsApp calls, sparking popular discontent, and the government defaulted on its sovereign debt for the first time in a year. In early 2020, the time when the pandemic coincided with the outbreak of the pandemic around the world, adding to all this the explosion of ammonium nitrate stocks stored in the port of Beirut in August 2020, which cost the city billions of dollars in damages and dozens of deaths.
All this chaos, led to the panic of the banking system, which made the banks limit withdrawals at first, and then closed their doors completely.