Read on Twitter
One last thread.
USD, exchange rates, black markets, corruption & solutions.
Exchange rates are among the most difficult financial market prices to understand and therefore to value.
Before I start, let’s have a look at what determines exchange rates.
USD, exchange rates, black markets, corruption & solutions.
Exchange rates are among the most difficult financial market prices to understand and therefore to value.
Before I start, let’s have a look at what determines exchange rates.
The exchange rate is determined by Supply and Demand for Lira, and these are determined by:
-Monetary policy (Central Bank)
-Fiscal policy (gov)
-The balance of payments (imports/exports, cash flows in & out)
-Behavioral finance (trust in the currency, gov & banking sector)
-Monetary policy (Central Bank)
-Fiscal policy (gov)
-The balance of payments (imports/exports, cash flows in & out)
-Behavioral finance (trust in the currency, gov & banking sector)
Before BDL interventions, Exchange wholesalers used to price the Lira according to the law of S&Demand. How?
They follow their cash movement. If they are low on lira, they need to buy Lira; to do so, they reduce the rate.
Once they’re low on $, they increase it accordingly.
They follow their cash movement. If they are low on lira, they need to buy Lira; to do so, they reduce the rate.
Once they’re low on $, they increase it accordingly.
What happened? Many interventions (circulars) destroyed the parallel market mechanics. The beginning of the rise of black markets.
1- 21 January: the syndicate of Exchange priced the USD at 2000 per $.
2-06 March: BDL issued a circular to set the exchange rate at 2000 per 1$.
1- 21 January: the syndicate of Exchange priced the USD at 2000 per $.
2-06 March: BDL issued a circular to set the exchange rate at 2000 per 1$.
3-26 April: BDL issued a circular to set the USD selling rate at 3200/$.
They basically issued useless circulars to “force” the rate to drop.
Result: Wholesalers & licensed sorrafin were forced to follow it while unlicensed / politically backed sarrafin were pricing 3a zaw2on.
They basically issued useless circulars to “force” the rate to drop.
Result: Wholesalers & licensed sorrafin were forced to follow it while unlicensed / politically backed sarrafin were pricing 3a zaw2on.
Licensed shops started losing their market share as they were pricing using artificial rates, while black market were following a disordered law of Supply & Demand
Whatsapp & telegram groups were created to provide liquidity with a “vision to fight sorrafin profits & corruption”
Whatsapp & telegram groups were created to provide liquidity with a “vision to fight sorrafin profits & corruption”
As wholesalers stopped setting the rate, online exchange applications started to set artificial inflated prices.
The current market doesn’t have a specific exchange rate, so basically these rates are set to fit the backed corrupted manipulators.
The current market doesn’t have a specific exchange rate, so basically these rates are set to fit the backed corrupted manipulators.
What are black markets’ mechanics? Each person/sorraf can the price as much as he likes as long as he can buy or sell.
These “sorrafin” don’t mind pricing the USD at 15,000/$ as long as they can sell at 15,500/$
These “sorrafin” don’t mind pricing the USD at 15,000/$ as long as they can sell at 15,500/$
Black markets don’t have a specific location or shop. Anyone who buys & sells USD without a license is considered a black market dealer.
From random individuals, telephone shops, groceries stores, to politically backed sorrafin.
From random individuals, telephone shops, groceries stores, to politically backed sorrafin.
When wholesalers were pricing the USD/LBP rate, many were able to track real exchange rates & stop them from inflating it.
Now we can’t, as wholesalers and licensed exchange shops are forced to price at 3850-3900 (doesn’t follow the law of S&D).
Now we can’t, as wholesalers and licensed exchange shops are forced to price at 3850-3900 (doesn’t follow the law of S&D).
Result: greed, corruption & manipulation of exchange rates. Many holders of USD were doing “worse than the sorraffin” they’re supposed to fight.
These groups were simply inflating exchange rates.
These groups were simply inflating exchange rates.
Why’s the rate heavily fluctuating (increasing & decreasing 1000 lira per day)? The market simply being manipulated (up & down).
The black market is sucking banknotes at the rates that fit them. They simply collect USD at low rates & resell at higher ones.
The black market is sucking banknotes at the rates that fit them. They simply collect USD at low rates & resell at higher ones.
The main USD buyers are major merchants needing to exchange large quantities to cover their imports, speculators & individuals who require modest amounts (transfer to their kids abroad, savings, covering $ expenses...)
The current black market size is really low & illiquid as the main market markers (Wholesalers & Class A shops) either closed their doors (they are making losses as they lost their market share) or are covering the USD demand from food importers only.
Raw materials, food & basic necessities are currently being covered by BDL. This considerably dropped the $ demand.
Another factor that dropped the high exchange rate (9500): individuals & importers aren’t willing to purchase $ at this rate. So holders of $ can’t find any buyer.
Another factor that dropped the high exchange rate (9500): individuals & importers aren’t willing to purchase $ at this rate. So holders of $ can’t find any buyer.
WHAT A MESS! How can we stop getting manipulated? How can we stop losing money? Well basically the only way out is to push for political, monetary & fiscal reforms.
I will mention few short & long term solutions to adjust exchange rates:
I will mention few short & long term solutions to adjust exchange rates:
1- Rates need to be combined within a central bank and bank organized market. The only way to gauge the true value of the Lira is to pool all markets together (BDL, banks & licensed sorrafin) under 1 platform.
2- BDL does not have the reserves to support the pound. They should allow the USD/LBP rate to float at exchange houses.
The rate should be updated regularly following the law of Supply & Demand; exchange wholesalers will set the rate in collaboration with BDL.
The rate should be updated regularly following the law of Supply & Demand; exchange wholesalers will set the rate in collaboration with BDL.
3- Decrease sorraf market share: banks should cover $ demand from meds/food importers & not sorrafin.
4- Create a platform (منصة) that actually allows you to execute trades. The only way to fight illegal markets is to create a real market where you can actually buy & sell USD.
4- Create a platform (منصة) that actually allows you to execute trades. The only way to fight illegal markets is to create a real market where you can actually buy & sell USD.
Once the rate floats at licensed shops, the police should close all unlicensed & black market exchange offices to fight speculations, illegal activities & fraud.
Digitalize exchange houses, correctly audit them.
A receipt should be given following each buy or sell transaction.
Digitalize exchange houses, correctly audit them.
A receipt should be given following each buy or sell transaction.
Individuals should have access to an official reliable application that provides exchange rates.
Once created, the police should ban all other applications as they post inaccurate inflated rates.
Once created, the police should ban all other applications as they post inaccurate inflated rates.
Lira printing press is still running, with a growing supply of Lira on the market chasing a dwindling supply of US dollars. Stop printing lira, cancel BDL circular #148 & #151, or else the rate will continue on increasing.
These circulars were a disaster,simply catastrophic.
These circulars were a disaster,simply catastrophic.
How can we strengthen the lira on the long run?
We must introduce the right economic and political reforms to restore trust, lower the Balance of Payments deficit, and lower the Fiscal deficit.
We must introduce the right economic and political reforms to restore trust, lower the Balance of Payments deficit, and lower the Fiscal deficit.
Invest in exports!
A healthy export sector will generate improvement in the current account balance and an increase in USD reserves, which can be used for protecting the currency value (BDL intervention) against future speculative attacks or lack of trust by investors.
A healthy export sector will generate improvement in the current account balance and an increase in USD reserves, which can be used for protecting the currency value (BDL intervention) against future speculative attacks or lack of trust by investors.
I tried to simplify it as much as possible (more solutions are available) & I also skipped many events & factors.
Sadly the law of supply & demand was replaced by the law of the jungle.
"Ade el dollar lyom?" will never have a specific answer if things do not change.
Sadly the law of supply & demand was replaced by the law of the jungle.
"Ade el dollar lyom?" will never have a specific answer if things do not change.
