Podcast: When Currencies Fail: A Primer on the Dollar Crisis in Lebanon

Coindesk | Nathaniel Whittemore | Apr 29, 2020

Crisis in lebanon - Podcast:  When Currencies Fail: A Primer on the Dollar Crisis in LebanonA massive shortage of dollars is instigating economic chaos, including a more than 50% loss of value in the Lebanese pound and what looks like an enormous local premium for bitcoins. Presented in podcast and full-transcript formats.

The Lebanese pound has lost at least 50% of its value against the dollar since last year. About 220,000 people have lost their jobs. Food prices are up 58%. An estimated 75% of the population needs assistance of some kind. And over the last two nights, at least a dozen banks have been torched by protesters.

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The catalyst? Not coronavirus but a massive dollar shortage destroying an economy that relies on inflows of U.S. dollars to function.

In this episode, NLW breaks down how Lebanon models what it looks like for a currency to fail, and why this likely isn’t the last emerging market currency to experience a similar crisis in the months to come.

A few Snippets from the full transcript

It is Wednesday, April 29th and today we are going to be talking about Lebanon, specifically the currency crisis overlapping a political crisis overlapping a larger economic crisis that is engulfing Lebanon and I think has relevance for how we understand the dollar in the world, the dollar's role in the world and the fallout from COVID-19. I wanted to bring this episode to you because I noticed last week Lebanon start to emerge in the crypto sphere and there were two contexts:

The first was Dan Tapiero. He picked up on a piece by newsBTC noticing that Bitcoin seemed to be trading at fifteen thousand dollars in lebanon via localbitcoins.com which is a peer to peer platform for trading Bitcoin between people. He said the classic emerging market funding crisis was made worse by deflationary dollar peg that is breaking. Study this case as it will be modeled for other weak emerging markets. It will be a key part of the macro story behind the upcoming Bitcoin price rally.

Banks start to limit withdrawals, which is exactly what happened.

Banks started to limit how much could be withdrawn in USD and that creates more demand for dollars. All of a sudden that activity moves to the black markets because if banks won't allow people to withdraw money or get access to dollars, black markets will, but the black market price is not going to stay the same as that official peg.

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This keeps going on. As people start to see the peg fall further, they want to minimize loss.

They go from, "I don't want to lose the value that I would have had at that official peg going on the black market" to "The black markets, the only place I can get those [US] dollars

if it's 2000 Lebanese pounds to the dollar, now, I want to lock in that loss rather than worry or take the risk of a loss of greater debasement of the value of the Lebanese pound in months to come.

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