For the second time in less than a year, the Governor of Lebanese Central Bank Riyadh Salameh announced in a press statement that the Central Bank will be launching a Central Bank Digital Currency in 2021. As he was quoted as stating, “The digital currency will reinstate trust in the banking sector and transform the financial economic system to a cashless one.”
This is the third time the Governor of Lebanese Central Bank mentions his intention to launch a digital currency. He had mentioned this in April of 2020 and back in 2019.
However it will not be an easy task. Most Central Banks and countries thinking of launching a Central Backed Digital Currency are usually countries that have a stable currency as well as have a society and economy that is already used to utilizing e-payment methods, such as China for example and European Union countries.
In addition many governments are still studying how to launch these CBDCs, and whether or not they will be wholesale CBDCs or retail CDBDs or both. This is the case in many countries globally including regional governments in UAE and the Kingdom of Saudi Arabia. There are also technical issues that need to be settled as whether these CBDCs will be on blockchain networks or other.
In addition most CBDCs are usually pegged to a stable currency or asset. Central Banks who are looking into issuing CBDCs either have strong currencies or peg their currency to the dollar or another asset. Today the Lebanese Lira is in a state of disarray and is fluctuating daily, In Lebanon there are three exchange rates for the Lebanese lira versus the dollar. Lebanon is also in talks with the IMF (International Monetary Fund) which is asking to float the Lebanese lira making a stable peg with a stable rate almost impossible.
These are not the only issues with regards to the implementation of a digital currency in Lebanon. Legislation is lacking. There is currently no legislation with regards to digital wallets, digital payments, digital identity with proper EKYC procedures and processes. And if Lebanon chooses to define digital currency what will they do with cryptocurrencies which are as well a form of digital currencies. The launch of a digital currency requires the regulatory, legislative environment conducive to this. To date the Lebanese parliament has only passed the digital signature law and electronic payments law.
While the Governor of Lebanon believes that he can solve two issues with the launch of a CBDC, the first being the lack of trust in banks and the second being the high inflation due to the fact that the Central Bank has had to print 210% more currency bills in the past year, the CBDC will not actually solve either. Why, because if the Lebanese citizen does not trust their government, does not trust the banks, or their own currency, with many of them safekeeping their cash in their homes and business as well as exchanging their liras for dollars, so how will they trust a Central Bank Digital Currency issued by the state? What has changed? The answer is only the form but not the core.
As for increasing the trust in banks, once you issue a Central Bank Digital Currency for retail for example, why would citizens of Lebanon need to have a bank account, they could just hold their money in their digital wallet, make payments directly from these wallets, and even carry out Peer to peer lending and other financial services from their own wallets. This would especially be carried out given that Lebanese banks are not allowing their clients to take out their money. Even if the CBDC is a wholesale function that doesn’t mean trust in banks will come back.
Finally the statement made by the Governor is one of many he has made that have not seen the light of day. Earlier this year the Governor announced that Lebanon would be launching the Oxygen Fund for the manufacturing industry. The platform would utilize fintech, and technologies such as blockchain and AI. It was set to be launched in April 2020, then postponed to June 2020 and has still not gone live.
If the Lebanese were given a choice between holding a crypto currency such as Bitcoin or holding a CBDC currency in Lebanese lira, most probably they would choose the former given that the Lebanese Lira has lost over 80 percent of its value, while Bitcoin today stands at more than 14,000 USD from almost 100 USD 10 years back. So CBDC or not, trust is what is truly lacking whether in digital or physical form.