The Note Worth a Dollar
For twenty-two years the Lebanese lira was fixed at 1,507.5 to the United States dollar, and the fix held because the central bank kept paying more for dollars than anyone else would. When the inflow stopped in 2019 the banks shut their doors, and the money inside them has still not been given back.
The bill in a Beirut restaurant arrives in United States dollars, is paid in United States dollars, and the change comes back in Lebanese lira, because nobody carries coins in a currency that no longer has any. The largest note the country prints is 100,000 lira. At the official rate it is worth a little over a dollar. Hand over a hundred-dollar bill in a small shop and it will be held to the light, turned over and examined for tears, because a damaged note is refused everywhere and there is no bank behind the counter to take the loss.
This is not inflation in the ordinary sense, where prices rise and a currency slips. It is what happens when a banking system stops honouring its own deposits and no law is ever passed to say so. Lebanese households had money in Lebanese banks, in dollars, and from October 2019 they could not have it. Almost seven years on they still largely cannot, the loss has never been formally recognised, and the question of who eats it is the central unresolved argument in Lebanese politics.
The peg and what held it up
From 1997 the Banque du Liban held the lira at 1,507.5 to the dollar. A peg of that kind needs dollars, and Lebanon does not export much that earns them: what it had was remittances from a very large diaspora, and a banking sector that offered interest rates high enough to pull that money home. Riad Salameh ran the central bank from 1993 to 2023, three decades, and for most of that period the arrangement was written up admiringly abroad. A small country with a fixed rate, deep dollar deposits and a bank that always paid. The mechanism underneath it was that the state borrowed those dollars, spent them, and serviced the debt by attracting more.
Financial engineering
By 2016 the inflow was weakening and the central bank began a set of operations it called financial engineering. In substance, commercial banks were offered returns on dollars placed with the Banque du Liban that were far above anything available in the market, so the banks took their depositors' dollars and lent them to the central bank, which lent to the government. Each participant booked a profit. None of the dollars went into anything that would generate dollars later. The structure worked while new deposits kept arriving to pay the returns promised on the old ones, and the World Bank has since described the arrangement, in its Lebanon Economic Monitor, in the plain language of Ponzi finance.
A bank that pays for today's dollars with tomorrow's dollars is solvent for exactly as long as tomorrow keeps arriving.
The two weeks the banks were shut
On 17 October 2019, with a proposed tax on internet calls as the trigger, the country filled the streets. Banks closed for roughly two weeks, and when they reopened they simply refused to release dollar deposits — no withdrawals abroad, no transfers out, and hard limits at the counter. Parliament never legislated any of it. The controls were imposed by the banks themselves, which left depositors with no statute to challenge and no framework to appeal to, and the trapped balances acquired a name: lollars, dollars that exist only as a line in a Lebanese ledger and can be taken out only in lira, at rates the bank sets. It is a haircut administered by mechanism rather than by decree. In March 2020 the government announced it would not repay a maturing Eurobond of around 1.2 billion dollars — the first sovereign default in the country's history — and the following year the World Bank judged the crisis likely to rank among the three most severe episodes anywhere since the middle of the nineteenth century.
What a lira is worth
For three years the country ran several exchange rates at once. The central bank went on publishing 1,507.5 while the street traded at fifteen, then thirty, then sixty times that, and different official rates applied to fuel, to wheat, to bank withdrawals and to customs, which meant that every transaction in the country was also a decision about which rate you were entitled to. The official figure was finally moved to 15,000 at the start of February 2023, and on 31 January 2024 it was unified at 89,500, where it has stayed. Measured against the old peg that is a loss of something over 98 per cent. The rate has been notably stable since, which is worth stating carefully: it is stable because the currency has been displaced from most of daily life rather than because it has been rescued. Salaries, rents and school fees are quoted in dollars and settled in cash, and a country that once ran one of the most banked economies in the region now moves an enormous share of its money in banknotes. Estimates of how large that share is vary widely and are disputed.
Who pays for the hole
The gap between what the banks owe depositors and what the system actually holds has been put at somewhere above seventy billion dollars, and the number itself is the fight, because whoever's estimate wins has effectively decided how much can be recovered. Successive recovery plans have differed on that figure by tens of billions. An agreement with the International Monetary Fund was reached at staff level in April 2022 and never implemented, because the conditions attached to it — restructuring the banks, reforming banking secrecy, legislating the capital controls that had been operating informally for years — required the same parliament that the banks and the political class are represented in to apportion the losses among themselves. Parliament moved on banking secrecy and on a framework for restructuring the banks in 2025; the law that says who actually absorbs the deposits has not passed. Salameh left the central bank in July 2023, was sanctioned by the United States, the United Kingdom and Canada the following month, and was arrested in Beirut in September 2024. None of that returns a deposit. The bill in the restaurant is still in dollars, and the change is still in a currency worth about a sixtieth of what it was.