Beirut- In light of the worsening economic and financial crises in Lebanon, reliance on the cash economy is increasing significantly. With the decline in confidence in the banking sector, and the spread of restrictions on bank withdrawals, the Lebanese are increasingly resorting to using cash in their daily transactions.
In addition, the monetary economy plays a major role in avoiding banking restrictions and problems related to multiple exchange rates. As the current situation continues, the size of the monetary economy is expected to increase, which poses new challenges to achieving financial and economic stability in the country.
Financial and economic researcher Dr. Imad Farran confirms to Al Jazeera Net that any country going through a crisis, whether it is financial, economic, political, social, or a natural disaster, usually depends on the support of the banking sector to restore its balance, but the situation in Lebanon is different, as the banking system is part key from the crisis.
Dr. Fran explains, “This crisis was not the result of the moment, but rather the result of the accumulation of wrong economic and financial policies, and the absence of vision, planning, inspection, and administrative and financial oversight. As a result of the loss of confidence in the banking sector, financial transactions turned to direct cash.”
He points out that the cash economy includes operations that take place through cash payments, without relying on banking services, and this leads to the absence of the role of banks and a reduction of their influence in the financial system.
He continues that this led to two main complexes:
- The first is the difficulty of controlling the size of the money market and determining the extent of money in circulation.
- The second relates to the possibility of using these funds in illegal operations such as money laundering, especially since Lebanon is under global supervision to combat money laundering.
Calls for comprehensive reform
Financial and economic researcher Fran stresses that “financial reform requires a comprehensive reform of the system as a whole,” explaining that “the financial system is not independent of the political or administrative system.”
He emphasizes that achieving financial reform is still far-fetched if administrative control is not strengthened effectively, and proves that there is a need for a unified tax system and enhancing the collection of customs and taxes in a manner commensurate with the real volume of money in circulation, instead of burdening the poor classes alone.
While economic expert Khaled Abu Chakra points out to Al Jazeera Net that the Lebanese monetary economy’s problem can be divided into two parts:
- Loss of confidence in banksSince 2020, the crisis of lack of confidence has led to a major shift towards cash dealing after banks stopped paying deposits. As a result, hospitals, gas stations and shops stopped accepting credit cards, or required accepting half the amount in cash. This situation led to the freezing of funds in banks and the expansion of the monetary economy to constitute about 50% of the Lebanese economy.
- Informal work: A large proportion of enterprises, ranging from 50% to 70%, operate informally. These institutions are not registered with Social Security and do not obtain legal papers and licenses from the relevant authorities, which forces them to deal in cash instead of checks or credit cards.
Abu Chakra points out, “Last year, out of 40 recommendations from the FATF, it became clear that Lebanon was very highly committed to 25 recommendations, partially committed to 6 recommendations, and committed to 9 recommendations. This means that we have a challenge in adhering to the 25 recommendations that it did not adhere to.” Fully”.
Abu Chakra confirms that the banking sector is committed to financial regulations, but the problem lies in other sectors such as law firms, real estate dealers, merchants, and importers, and these sectors are still outside the scope of supervision, as he put it.
Lack of trust is a cornerstone of the crisis
On the other hand, researcher and economic expert Dr. Mahmoud Jebaei told Al Jazeera Net that weak confidence in the banking sector is one of the main reasons for adopting the “cash economy” in Lebanon.
This situation creates additional problems and crises for the country, including suspicions about the possibility of money laundering and other illegal activities, which threatens to include Lebanon on the “gray list” that may lead to great economic and financial isolation, the same spokesman adds.
Dr. Jabbai defines the “gray list” as a list that accuses a country of money laundering or supporting terrorism. When any country is included in this list, it suffers difficulty in cooperating with the international financial community, which affects the dealings of local banks with correspondent banks, and leads to almost complete isolation in the financial community, causing disastrous consequences for the economy and finances.
He says, “This issue requires comprehensive treatment, starting with the official financial authorities, including the Bank of Lebanon and the Lebanese banks, which have been seeking for a long time to play their role after the crisis.”
Jabaei points out that the Bank of Lebanon issued Circular No. 165 about two years ago, with the aim of imposing new conditions on checks and foreign currencies, in order to encourage the return of banking activity and limit the parallel monetary economy.
He added, “As a result of this circular, about $3 billion in deposits were stored in banks, with banks stressing the need to provide guarantees and evidence of the source of the deposited funds, with the aim of eliminating suspicions related to money laundering.”
Jabaei continues, “The tragic political situation in the country requires an urgent solution, as a political consensus must be reached to establish a new government that sets a plan for economic and financial recovery. This plan must be integrated between the economic policy and the government’s financial policy, and be in line with the monetary policy of the Bank of Lebanon.”
No drains except for necessity
For his part, economics and financial markets expert Dr. Imad Akoush believes that more than 99% of the Lebanese avoid dealing with banks except in cases of extreme necessity, as a result of the failure of these banks to take effective measures to address the crisis since 2019.
and say For Al Jazeera Net “A delegation from the US Treasury Department came before mid-March to find out what Lebanon had accomplished in the cash economy and the banking situation, and left after meeting with a number of official and unofficial bodies, and warned the delegation of the repercussions of the transgressions.”
He continues, “Giving Lebanon a new opportunity this year to prove its commitment to the rules and standards that will avoid it entering the gray list. The question remains whether Lebanon will succeed in achieving this goal.”
