Amid a backdrop of the worst economic turmoil in decades, the use of cryptocurrencies is gathering momentum in Lebanon.
Despite the country’s central bank, Banque du Liban (BDL), banning banks from processing crypto-related transactions, behind the scenes, adoption of cryptocurrencies is growing in parallel with restrictive banking regulations that are eroding purchasing power.
Back in December 2013, Lebanon was the first country in the region to issue warnings about Bitcoin and its crypto brethren, citing concerns primarily relating to price volatility, terrorism financing, scams and money-laundering.
Yet, for many Lebanese, their country’s own currency is fraught with similar risks and is seen as far more volatile.
As the financial crisis rocking the country continues its downward spiral, crypto enthusiasts are seemingly circumventing the law by investing in digital assets through peer-to-peer (P2P) exchanges.
Instead of a centralised exchange, buyers are allegedly interacting directly with sellers on a one-to-one basis. Most of these transactions are happening by referral through encrypted messaging apps, with platforms such as Telegram and Whatsapp increasingly serving as backchannel avenues for investors to connect and negotiate bilateral trades.
As one trader who recently spoke to Copper succinctly summarised: “It’s sort of like illicit drugs; the more you ban, the more popular it gets. This is exactly what is happening to bitcoin and other cryptocurrencies in Lebanon.”
Lebanon has been grappling with complex political and economic turmoil since its 1975-1990 civil war. One of the most indebted countries in the world with a debt equivalent to 170% of its GDP, Lebanon defaulted on payments for the first time last month.
The crippling economic situation has coincided with the spread of the coronavirus, which has catapulted the Middle Eastern nation further into economic ruin. According to recent estimates, the richest 1% of the population claims a quarter of the national income while poverty has risen to 45% of the population.
Since protests erupted in October 2019 and capital inflows dried up, the Lebanese pound has shed half of its value and continues to slide further. In an attempt to combat the acute liquidity crisis, banks banned transfers abroad and gradually restricted dollar withdrawals until suspending them altogether.
A bank circular issued by the BDL on 16 April that went viral on social media, detailed rules requiring banks and money transfer offices to convert foreign currency transfers and cash withdrawals from foreign currency bank accounts to the Lebanese pound at market rates determined daily by the bank.
On 24 April, the exchange rate of money sent through wire transfer offices was set at 3,625 Lebanese pounds per dollar – 58% weaker than the official peg. To understand the severity of this action, one need only look at the number of Lebanese living overseas which stands at three times the resident population of the country. A great deal of local families rely on remittances from relatives in Europe and abroad, particularly during the ongoing closure of non-essential businesses.
Many frustrated citizens who keep their savings in foreign currency are now defying lockdown rules and flocking to the streets to protest the dire economic situation, criticising the central bank of sequestering their savings. On Saturday, assailants hurled an explosive device at a bank in the southern port city of Sidon while only this afternoon (28 April), clashes over the currency crisis resulted in a man’s death in the northern Lebanese city of Tripoli.
Starved of funds, the local Lebanese population is being advised to skirt the crypto ban by prominent American-Lebanese financial markets commentator, Nassim Nicholas Taleb, who is something of a public cheerleader for Bitcoin and cryptocurrencies.
“Use cryptocurrencies,” he tweeted in response to a post about the BDL circular ordering foreign currency remittances to be paid out in the local currency. Taleb, who is also the author of the 'Black Swan' theory, has spoken publicly about beliefs that cryptocurrencies could replace classical remittance and exchange tools in emerging economies such as Lebanon.
Dmitry Tokarev, CEO at Copper, believes that uncertainty over how deep the restrictive banking regulations will run is prompting more of the population to park their money in assets – digital or tangible (gold, cars, real estate) – rather than keep it in the banks.
He commented: “Cryptocurrency trading persists in Lebanon, irrespective of the stance adopted by the government. Given the anti-establishment ethos running through the country at the moment and fears that the economic situation will only worsen, demand for cryptocurrencies (Bitcoin especially) will likely continue on its exponential trend.”
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