Historical Snapshot: The Collapse Of The Lebanese Lira In The 1980s
As some of you may or may not know, this is not the first time the Lebanese Lira has had a dramatic collapse in value. The previous collapse leaves us with much to learn, and adds necessary context to the predicament we find ourselves in in 2023.
As Banque du Liban’s records show, during the 1980s the Lebanese Lira witnessed a huge decline in value as Lebanon navigated vicious wars and a changing global economy. In January of 1980, the Lira traded for an average of $1 = 3.27 LL. Two years later, that rate would become $1 = 4.7 LL. As locals welcomed in 1984, the rate climbed up to $1 = 5.68. Pretty normal so far, just a 2.41 change in 4 years, nothing compared to something like a 20,000 rise just this morning. Well, we’re just getting started.
In 1980, Assafir quoted then-Minister of Finance, Dr. Ali Khalil, as saying “there is no fear over the Lira.” He instead pointed out that his government would be working on combating inflation and tightening up the treasury. Close to 10 years later, in December of 1990, a look at the daily economic page would show much fear over the Lebanese Lira.
On this day, the 20th of December 1990, one dollar would now be worth 857.50 LL. A pretty meteoric rise from the rate that people were told not to fear in 1980. In the midst of this currency collapse, a meeting was set between the central bank governor and the association of banks to discuss the fluctuating exchange rate, and the Ministry of the Economy and bakers were clashing over the price of a loaf of bread. Sounds pretty familiar, right?
Elsewhere, residents were marching through the streets of Beirut’s southern suburbs to demand the government fix the prices of foreign currencies.
The Lebanese Lira truly began to collapse against the dollar in 1986, when $1 started off being at 20.23 LL (on average) in January, and ended the year trading at $1 = 69.74 LL. In 1987, the Lira would reach complete freefall against the dollar as its value went from 168 in July, to 272 in September, 389 in October, and 477 in December.
On the 17th of November, 1987, Assafir published a detailed study of the Lira’s collapse and possible solutions. The piece, authored by Dr. Mohamad al Atrash, traced the start of the collapse to 1984 and partially connected it to the 273% hike in imported consumer goods prices. Atrash argued against understanding the collapse as a result of the government’s consistent budgetary deficits, and instead sought to prove that it was a result of capital flight out of the country, as more and more upper class residents lost hope in the end of Lebanon’s war. The author then recommended that the government implement some sort of capital control to prevent continued capital flight out of the country.
The intensification of the war at the end of the 80s, and the continued collapse in governmental authority, meant that these recommendations and others did not get put into action. Instead, we can spot a Dr. Mohamad Michel Al Gharib, in 1990, standing at the entrance of Hamra (near the Ministry of Tourism), distributing Lebanese Lira “for free” to “remind people of the value of the national currency.”