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At the economic level, 2023 was no different from the last three years in terms of continued stagnation and the absence of radical remedies. This meant that the basic features of the banking crisis remained intact. However, it is important to point out a number of developments that the Bank of Lebanon’s budget experienced during the year, particularly at the level of the value of gold and foreign exchange reserves.
Through the end of November, the central bank continued to collect book profits from the rise in global gold prices, the value of which has so far reached $2.15 billion. He also continued to accumulate financial reserves created by purchasing the dollar from the market in the post-Riyad Salama period, amounting to US$490 million to date. Of course, all of these changes will not have an impact on the causes of the ongoing banking collapse, but they will definitely affect the composition of the budget and its ability to pay.
Change in the value of gold reserves
Figures available at the beginning of this month, December, indicate that the value of gold reserves has risen to the limit of $18.8 billion, which is about $599 million more than the value of these reserves just 15 days ago, mid last month, November. It is known that the rapid increase in the value of budget gold reserves, which reached almost 3.3% in half a month, is mainly associated with the sustained rise in global gold prices, which often cause such jumps during economic and military crises and turmoil .
In any case, what happened earlier this month was nothing new this year. At the end of October, the item “gold reserves” in the Central Bank’s budget recorded an increase to $18.42 billion, which was about $1.05 billion more than the value of reserves in the middle of the same month. More specifically, the increase in the value of gold reserves earlier this month was not just a temporary event, but rather part of a path that began months ago as a result of the continuous and steady rise in global gold prices. Noting that global gold prices have risen by 11% since the Gaza war broke out on October 7, which explains these shifts in the Central Bank’s budget.
However, if we want to calculate the total profits that the Bank of Lebanon made in 2023 due to the increase in the price of gold, we can see that the value of gold reserves did not exceed the limit of $16.65 billion at the beginning of the year. This suggests that the value of gold reserves has increased by approximately $2.15 billion since the beginning of 2023. This amount will of course, from a financial point of view, increase the value of liquid or liquefiable assets, even if the law currently prohibits the use of these assets except with the consent of Parliament.
It is worth noting here that the value of gold reserves at the beginning of November last year increased by about $3.28 billion compared to the value of reserves in exactly the same period last year, which reflects the importance and scale of the achievements by the Central Bank Gains confirmed as a result of these transformations.
Increasing foreign exchange reserves
At the beginning of this month, the volume of the Bank of Lebanon’s foreign assets – assets denominated in foreign currencies – had risen to $14.28 billion, of which about $5 billion were Eurobonds owned by the Bank of Lebanon and the they own could not be liquidated at face value. In this sense, it can be said that the volume of liquidity reserves in foreign currencies at the beginning of this month amounted to $9.28 billion.
In practice, these figures suggest that the central bank has lost about $910 million of its total foreign exchange reserves in 2023 if we compare the current level of reserves with the level at the beginning of the current year. The bulk of these losses are due to the dollar pumping operations carried out by former governor Riad Salama through a banking platform before leaving the governorship in early August last year.
The most important change, however, is the completely opposite path that the central bank experienced after Salama’s departure. Since then, the value of foreign exchange reserves has increased by more than $490 million after incumbent Governor Wassim Mansouri – supported by the consensus of the Central Council – suspended dollar pumping operations in the reserve account, not to mention suspending the work of the foreign exchange reserve account Banking platform itself. Since then, the central bank seems to have managed to maintain an appropriate financial monetary balance, which allows maintaining a stable price for the lira in the parallel market and also allows the accumulation of reserves (rather than depleting them) through the purchase of dollars enable from the market.
In any case, after the Bank of Lebanon announced in December the end of work on the price of the platform itself, the alternative platform, which is currently being worked on with Bloomberg, is expected to be launched next year. The new platform is intended to determine the mechanisms for buying and selling hard currencies on the market, instead of relying on the parallel market price as before.
Ultimately, all of these successes will fail to address the root of the banking crisis that has hit the financial sector and represents a huge gap of over $73 billion. However, the shift associated with the size of reserves indicates the possibility of achieving the minimum currency balance without increasing this gap and wasting even more of the remaining reserves. As for the shift related to the value of gold reserves, this will lead to a narrowing of the existing gap due to the increase in the value of physical assets, even if they are not used to deal with the banking crisis. A radical solution to the existing crisis is not possible without a comprehensive reform package, which can only be implemented through an integrated financial plan.
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