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I was reading about the dollar crisis in Yemen the other day, which mentioned that even people who owned dollars couldn’t withdraw them.

If the situation with Lebanon’s currency is similar, what effect does that have on donations of USD to Lebanese organizations that don’t bring in new paper currency?

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Lebanon has had significant current account deficit (low level of exports versus imports). This was financed by capital inflows seeking to benefit from facilities given by the CEntral Bank. The Financial Times says:

Lebanon depends on imports and for years the central bank has helped to finance the trade deficit by offering high interest rates — sometimes more than 10 per cent a year — on dollar deposits from commercial lenders. The banks, in turn, passed those generous rates to their clients, helping to attract foreign currency from local depositors and the large Lebanese diaspora abroad.

The problem is that this suddently changed based on local instability. FT:

The system has helped Lebanese banks generate impressive profits. But last summer fragile investor confidence waned, the flow of dollars began to dry up and the system started to break down. Mass protests began in October, stoked by frustration with stark inequality, and eventually toppled the government.

The lack of USD means depreciation (in the black market particularly) of the local currency (which was overvalued).

Sending USD is equivalent to foreign capital inflow. It is one way to finance deficits and can help Lebanon. But it is clearly not a sufficieny nor sustainable solution. The problem is a depressed economy crippled with enormeous corruption (a problem running deep because of the ethnic and religious fault lines dividing society), lack of public investment and low productivity. It requires a deep clean of all the rotten political and elite class, which is on the "save yourselves" mode. Let's hope it doesn't descend into another civil war.

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  • $\begingroup$ I think I’m confused. If there’s a shortage of actual dollars in Lebanon, wouldn’t adding more virtual dollars not help the situation? $\endgroup$
    – Daniel B
    Commented Aug 6, 2020 at 15:07
  • $\begingroup$ @DanielB why not? $\endgroup$
    – chatGPT
    Commented Aug 7, 2020 at 9:59
  • $\begingroup$ People and organizations there already have dollars in their accounts, from what I understand, they just can’t withdraw them because there isn’t any paper currency. $\endgroup$
    – Daniel B
    Commented Aug 7, 2020 at 17:47
  • $\begingroup$ @DanielB The CB is trying to stop a bakn run, for sure, That's why there are limits to daily withdrawals, not because there is lack of paper currency. Plus, that is a separate problem. Making currency is an internal issue which does not depend on dollar availabilty. $\endgroup$
    – chatGPT
    Commented Aug 10, 2020 at 9:47
  • $\begingroup$ @DanielB If they have virtual dollars they can order to turn them into real dollars. It might take a few days or weeks to get the dollars printed and put on the plane and flown over there, but it can happen. If they have virtual dollars. Even if they don't want to wait that long, they can print some fake dollar coins and say "this is backed by a virtual dollar, you can change it at the bank but please don't" while the printed dollars come over. IDK the crisis in Lebanon in 2020, but usually these problems are caused by a shortage of any dollars, not just real printed ones. $\endgroup$ Commented Oct 28, 2021 at 16:40

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