The central bank of Lebanon plans to launch a new digital currency in 2021 as part of a broader effort to combat a parallel economic and financial crisis that has gripped the country.
Central bank governor Riad Salameh said at a meeting of officials on Monday, “We need to prepare a Lebanese digital currency project” to build confidence in the banking system.
“In terms of the money supply in the Lebanese market, an estimated $ 10 billion is stored in homes.”Salameh said, according to the state’s National News Agency.
The central banker added that a digital currency project launched in 2021 will help introduce a cashless financial system to improve the flow of money at home and abroad.
Lebanon is highly dependent on remittances from its vast global diaspora. According to the World Bank, personal transfers accounted for nearly 14% of Lebanese GDP in 2019. That figure reached 26.4% in 2004.
Salameh says Lebanon will keep its gold reserves as a hedge against a wider market crisis. In such a case, the central bank can sell its gold bars on foreign markets for immediate relief.
Banque Du Liban, the country’s central bank, has been playing with the idea of a state digital currency since at least 2018. Efforts appear to have accelerated earlier this year after violent protests and silent banking panic brought the Lebanese financial system to a standstill.
In the face of the dollar crisis, banks tightened restrictions on foreign exchange transactions and at least one large institution limited withdrawals to just $ 400 per month. A falling Lebanese lira made transactions in the local currency almost impossible.
In June, Protesters set fire to the Central Bank of Tripoli in anger over the collapse of the lira, which had long been pegged at $ 1,500. The lira would eventually drop to more than $ 5,000 before stabilizing again.
Growing confusion over Lebanese fiat money sparked a wave of Bitcoin purchases among locals, and peer-to-peer markets like Localbitcoins saw a sharp surge in activity.
Political chaos is nothing new to Lebanon. The small Mediterranean country has found it difficult to form an identity after its 15 years of civil war. A sectarian system of power-sharing, ruled by feudal elites, has made government of the country extremely difficult, even in times of relative calm.