01 The Hour
Morning
Friday 1 November 2019, Beirut
An hour after the doors opened, queues of several dozen had formed at at least eight banks in Beirut, with lines of up to twenty outside at least three more elsewhere in the city. At a branch north of the capital a customer held a paper ticket showing he was seventeenth.
What he would be allowed to take out was not set by any statute. The central bank had pledged that capital controls would not be imposed. Each bank had arrived at its own figure: 1,000 dollars a week at some, 2,000 at others, and one depositor was told 2,500 with a five dollar charge on every thousand.
02 The Sequence
17 Oct 2019, Thursday. Nationwide protests begin. Cash machines had already stopped dispensing US dollars before this date.
18 Oct Friday. The private banks close their branches. They remain shut for two weeks.
1 Nov Friday. Branches reopen with security reinforced. Queues form from early morning and tellers struggle with the numbers. Caps on foreign currency withdrawals and bans on transfers abroad differ from bank to bank. No formal capital controls exist.
2 Nov Saturday. The head of the banking association tells Reuters by email that there had been no extraordinary movement of money over the first two days, and that people had asked a great many questions.
11 Nov Monday. The central bank governor states that capital controls are not in place and will not be put in place, on the ground that money sent into the country must be able to leave freely.
12 Nov Tuesday. Branches shut again in a nationwide strike called by the bank staff union, which later extends it while a security plan for the branches is discussed.
17 Nov Sunday. The Association of Banks in Lebanon agrees a set of temporary directives: a 1,000 dollar cap on weekly withdrawals from US dollar accounts, hard currency transfers abroad only to cover urgent personal expenses, no restriction on new money coming in from abroad, and a request that customers use their cards. The statement says the measures do not represent restrictions on the movement of money and were agreed in consultation with the central bank.
19 Nov Tuesday. Branches reopen from the second closure under the agreed directives. The association's head describes them as a fence to protect the system until the situation returns to normal.
21 Apr 2020, Tuesday. Basic Decision 13221, circulated as Basic Circular 151, sets exceptional measures for cash withdrawals from foreign currency accounts. A bank may pay the customer in Lebanese pounds, with his approval, and sell the resulting foreign currency to the central bank. As first written, Article 2 required each bank to announce the market rate it applied, daily. The decision was to run for six months.
4 Aug 2020. Intermediate Decision 13253 repeals the article requiring each bank to announce its daily rate.
3 Jun 2021. Withdrawals under the circular are being paid at 3,900 pounds to the dollar, against about 13,000 on the parallel market and an official parity of about 1,500.
5 Jul 2023. The purchase rate in the text is 15,000 pounds to the dollar, within a monthly limit of 1,600 dollars per account. The decision runs to 31 December 2023 after several extensions.
3 Feb 2024. Circular 166 replaces the mechanism, allowing 150 dollars a month in cash dollars from the restricted accounts. Parliament has still not passed a capital control law.
03 The Hidden Dependency
A balance is a number and a currency. What it comes to depends on the rate at which it is paid out, and the rate was a matter for whoever paid.
Basic Decision 13221 let a bank settle a dollar withdrawal in Lebanese pounds and pass the foreign currency to the central bank. Article 2, as first issued, put the conversion at whatever market rate each bank announced that day. That article was repealed in August 2020 and the rate became a number written into the text: 3,900 pounds in 2021, 15,000 by mid 2023.
The official parity stayed at 1,507.5. The parallel market had gone past 13,000 by June 2021.
One balance, and more than one price attached to it, according to which door it came out of.
04 What Still Worked
Money Sent In From Abroad
The November directives lifted the restriction on new funds transferred in from outside the country, which put such balances on a different footing from the ones already sitting in the accounts.
Cards and Cheques
The association's statement said the measures were not restrictions on the movement of cheques, transfers or cards, and it asked customers to meet their needs with their credit cards.
The Pound Window
From April 2020, a holder of a restricted foreign currency account could take a monthly portion of it, paid in Lebanese pounds at the rate the decision carried. It remained a route out for four years.
05 The Plumbing
The Plumbing 21 Apr 2020
Basic Decision 13221 runs in two legs. The customer asks for cash against a foreign currency account or receivable, and with his approval the bank pays him in Lebanese pounds. The bank may then sell the foreign currency arising from that withdrawal to the Banque du Liban, which buys it at the rate stated in the decision, within a monthly limit per account. The bank reports the value of those sales to the Banking Control Commission of Lebanon every month. Every other dollar operation between bank and customer stays at the rate the central bank sets for its own dealings with banks.
06 The Pattern Library
1
When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019.
2
A currency replacement can require physical modification of each cash dispensing machine before the new notes can be issued, so the machine estate returns to service site by site rather than at once.
Observed: India 2016.
3
Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4
Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008.
5
When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6
A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7
Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
Changed today: Entry 1 gained Lebanon 2019, where branches shut for two weeks and reopened with caps each bank had set for itself. Entry 7 added, on restrictions imposed by institutions and their association rather than by law.