Banque du Liban (BDL) (Arabic: مصرف لبنان, French: Banque du Liban) is the central bank of Lebanon. It was established on August 1, 1963 and became fully operational on April 1, 1964. It is currently headed by Riad Salameh, who was named the Middle East's best central bank governor by Euromoney in 2005.
Ottoman domination of Lebanon, which lasted for more than four centuries, was brought to an end on October 6, 1918, with the entrance of the Levant Marine Division in Beirut roads. The paper money issued by the Turkish Treasury, with a forced exchange rate
, suffered the same fate.
In order to normalize economic life in the occupied territories and cover the expenses of the allied forces, English authorities imposed the banknote of the National Bank of Egypt, the Egyptian currency
having been, since October 30, 1916, closely linked to the sterling and entirely covered by securities issued in sterling.
In accordance with the convention signed between the French and the British governments on September 15, 1919, a new occupying authority started to rule Lebanon. French troops replaced the British, under the command of General Gouraud, who was appointed on October 12, 1919 as "High-Commissioner of the French Republic in Syria and Cilicia, and Commander-in-Chief of the Levant Army". Consequently, the use of the Egyptian currency, suitable for the British Treasury, became inappropriate. To obtain Egyptian pounds
, France, being the sole occupying power, had to offer increasing amounts of francs.
During the First World War, the French franc had maintained its status thanks to advances from the British and American Treasuries. However, in 1919, the French franc registered a drop because of the British government's decision to stop these advances, thus breaking the alliance between the franc, the sterling and the dollar, and also because of the US Government's decision to suspend its regulating role of the associated change rates. In order to replace the Egyptian pound, the French government decided, by Decree NÂ° 129 issued by the High Commissioner on March 13, 1920, to endow Syria with a national currency.
On September 1, 1920, the representative of France proclaimed Great Lebanon. In 1920, the Bank of Syria was granted the concession of issuing the Syrian currency, which became legal tender on May 1, 1920. Banknotes issued by this bank were reimbursable to the bearer or at sight by checks drawn on Paris, at the rate of FF 20 for one Syrian pound.
As a consequence, an independent, currency-issuing department was established at the Bank of Syria. It was responsible for putting in circulation and withdrawing banknotes. Issuance were made either on behalf of the Treasury in Paris or on behalf of the Bank itself.
Concerning commercial operations, the Issuing Department was to provide the Bank of Syria with banknotes only in exchange of foreign currencies or foreign securities, which constituted, together with the credits granted by the Treasury in Paris, the coverage of the currency in circulation.
On January 23, 1924, under the chairmanship of General Weygand, a convention was signed between the French, the Lebanese and the Syrian governments.
On November 1936, a treaty of friendship and alliance was signed between France and Lebanon for a 25-year period. As a result of successful negotiations between Lebanon and the Bank about the renewal of the concession to issue the currency for a 25-year period, the convention of May 29, 1937, was ratified on June 7, 1937.
Between 1939 and 1943, the control of the foreign trade and exchange system had been modified by a number of decrees. For this purpose, the French authorities established the Foreign Exchange
Office at the Bank of Syria and Lebanon, and all exchange operations were subjected to its control.
In 1941, the allied forces occupied Syria and Lebanon. A monetary agreement was concluded between the British Government and General De Gaulle, in which the official rate of the French franc was set against the sterling (ÂŁ1 = 8,125831), with freedom of conversion between both currencies. Consequently, the Syrian and the Lebanese currencies became pegged to both the sterling and the franc.
The pegging of the Syrian and Lebanese pounds
to the sterling (ÂŁ1 = LBP 8,125831) has had positive effects, given the sharp fluctuations of the franc and its successive devaluations. Between 1920 and 1940, the Syrian and Lebanese pounds had lost, according to some estimates, about 70% of their value against the dollar because of their pegging to the franc, which, during the period, had registered a decline against the dollar.
Thanks to this Agreement, the military authorities were able to easily meet their needs in local currency for financing their expenses in Syria and Lebanon. The authorities used to hand foreign currencies to the Foreign Exchange Office, and the latter used to give them back pounds obtained as loans from the Bank of Syria and Lebanon. Then, the Foreign Exchange Office converted the foreign currencies into French francs at the Central Treasury of Free France for keeping them in an account opened in the name of Bank of Syria and Lebanon, in order to cover the increasing issues of Syrian and Lebanese pounds.
In 1943, a new era of monetary independence started in Lebanon as a consequence of the newly-obtained political independence.
In 1944, talks were started between the British government and the French Committee for National Liberation concerning a devaluation of the franc against the sterling. In order to avoid a depreciation of the Lebanese and Syrian pounds, the French-English-Lebanese-Syrian Protocol was signed in Damascus on January 25, 1944, setting the parity of the Lebanese pound at ÂŁ1 = LBP 8.83 = FF 176.60, a rate that could not be modified without prior consultation with the Lebanese and Syrian governments.
Thus, when the financial agreement between France and Great Britain was signed on February 8, 1944, setting the exchange rate of the franc at FF 200 against the sterling, the Lebanese pound was not devalued as it happened in the past, the free purchase of sterlings having been maintained. In consequence, the official rate of the Lebanese pound was maintained at LBP 8.83 against the sterling, and against the French franc, it stood at FF 22.65. Moreover, the pound was convertible in franc as well as in sterling.
In case of a devaluation of the franc, the French Committee for National Liberation was committed to maintain the counter-value in sterling of the assets in francs of the Bank of Syria and Lebanon, including those recorded as coverage of the currency in circulation in Lebanon. However, the French government informed Lebanon, by a letter dated March 15, 1946, that it was no more possible to keep a system of free sterling transfer in Syria and Lebanon. Then, by a letter dated August 30, 1947, the French government deemed preferable to officially terminate the Agreement of January 25, 1944, which had become obsolete.
On April 22, 1947, Lebanon became member of the International Monetary Fund and of the World Bank (the International Bank for Reconstruction and Development).
Since Article 4, Section (a) of the IMF Articles of Agreement stipulated that each member should set the parity of its currency in relation to gold, or to the dollar rate on July 1, 1944, Lebanon informed the IMF Managing Director in 1947 that its national currency, the Lebanese pound, was pegged to the French franc by virtue of the 1937 Agreement, which grants the Bank of Syria and Lebanon the concession to issue the Lebanese pound.
Thus, the parity of the Lebanese pound was to be expressed in gold, taken as a common denominator, or in US dollar based on its rate of July 1, 1944.
In accordance with the agreements of January 25, 1944, the Lebanese pound was equivalent to FF 54.35, whereas the franc parity declared to the IMF was 7.46113 mg of gold and FF 119.10669 for one dollar. Thus, the parity of the Lebanese pound was set in gold at:
54.35*0.00746113 = gram 0.405512 and in dollar at: 100:2.19148 = cents: 45,6313.
By virtue of Decree NÂ° 9581/K of August 1, 1947, the Bank of Syria and Lebanon was designated as the depository of the IMF assets in Lebanese pound, in accordance with the provisions of Article XII, Section 2(a) of the IMF Articles of Agreement.
As a result of the IMF membership of Lebanon, Decree NÂ° 15105/K of May 27, 1949, included provisions on the currency coverage in gold, and in foreign currencies at market rates different from the official rates.
On January 24, 1948, the Lebanese and French governments signed a monetary agreement to which Syria refused to participate. Under this agreement, the official rate of the Lebanese pound was the rate declared to the IMF. Then, due to the Syrian opposition to the Agreement and to the severance of the customs union between both countries, the Lebanese pound became independent from the Syrian pound.
In a next step, Lebanon created the Foreign Exchange Office, a control body attached to the Ministry of Finance. Controlling exchange operations was limited to some hard foreign currencies, with free exchange for other currencies, but these restrictions were gradually removed by the Government.
Since the Convention of May 29, 1937, concerning the concession to issue the Lebanese pound was coming to an end in 1963, Lebanon decided to create a central bank. The Code of Money and Credit was promulgated by Legislative Decree NÂ° 13513 of August 1, 1963. It established the Banque du Liban as a moral person of public law, bestowed with the privilege of issuing the national currency.
Role and Functions
The Banque du Liban was established by the Code of Money and Credit promulgated on 1st August 1963, by Decree no. 13513. It started to operate effectively on 1st April, 1964.
BDL is a legal public entity enjoying financial and administrative autonomy. It is not subject to the administrative and management rules and controls applicable to the public sector. Its capital is totally appropriated by the State.
The BDL is vested by law with the exclusive right to issue the national currency. As stipulated by article 70 of the Code of Money and Credit, the BDL is entrusted with the general mission of safeguarding the national currency in order to ensure the basis for sustained social and economic growth. This mission consists specifically in :
- the safeguard of monetary and economic stability;
- the safeguard of the soundness of the banking sector;
- the development of money and financial markets;
- the development and regulation of the payment systems and instruments;
- the development and regulation of money transfer operations including electronic transfers;
- Development and regulation of the clearing and settlement operations relative to different financial and payment instruments and marketable bonds.
The BDL is endowed by law, with the prerogatives to fulfill its mission. It can use all measures it deems appropriate to ensure exchange rate stability, specifically the intervention in the foreign exchange market by buying and selling foreign currencies.
The BDL controls bank liquidity by adjusting discount rates, by intervening in the open market, as well as by determining credit facilities to banks and financial institutions. It regulates banks' credit in terms of volume and types of credit, by imposing credit ceiling, by directing credits towards specific purposes or sectors and setting the terms and regulations governing credits in general.
The BDL imposes on banks reserve requirements on assets and/or loans as determined by BDL, as well as penalties should shortfalls occur. Investment in TBs may be considered by the BDL as part of the reserve requirements.
The BDL grants licenses for the establishment of banks, financial institutions, brokerage firms, money dealers, foreign banks, leasing companies and mutual funds in Lebanon. The Banking Control Commission controls and supervises these institutions. Conferring with the Association of Banks, the BDL issues circulars and resolutions governing the relations of banks with their customers.
There is a regular coordination between the BDL and the Government in order to ensure consistency between BDL's objectives and those of the Government. Cooperation with the Government implies coordinating fiscal and monetary policy measures. It informs the Government on economic matters that might negatively affect the national economy and currency and suggests measures that might benefit the balance of payments, the price level, public finance and offers advice on how to promote economic growth. It also ensures the relations between the Government and international financial institutions.
After 4 years of impressive growth rates, the Lebanese economy witnessed a slowdown in activity reflecting domestic political tensions and regional uprisings. GDP growth has been estimated at around 2% in 2011, and is expected to reach 3.5% in 2012 according to the IMF. Inflation projection has been revised from 4 percent in 2010 to 6 percent in 2011, while more pressure is expected to be exerted on consumer prices in 2012 due to the increase in wages.
BDL's continuous commitment to exchange rate stability policy has become the cornerstone in maintaining financial and price stability. Its strategy of preserving a high stock of assets in foreign currencies as a precautionary measure proved to be essential in dealing with any crisis that may hit the economy. The BDL is currently holding around USD
32 billion in foreign currency assets, excluding gold reserves which are the second-largest in the MENA region.
Growing confidence in the national currency has enhanced the Central Bank's ability to have an efficient monetary policy through controlling interest rates and preserving their current low structure. The Central Bank is ready to make use of the appropriate monetary tools in order to manage liquidity and keep inflation under control. Despite a slight increase in deposit dollarization in 2011, it is still maintaining a low ratio of around 65% as compared to a high of 77% at end-2007.
As for the banking sector, the year 2011 reported a healthy performance as revealed by deposits growing at around 7% and credits rising by more than 14%. While last year's activity has been satisfactory, it turned out to be relatively less favorable than that of 2010 which saw a 10% growth in deposits and 23% growth in credits. Nevertheless, our banking sector is still recording very high liquidity buffers, capital above the regulatory minimum, low levels of non-performing loans and stable profits.
There are some key measures that have preserved our banking sector from being infected by international and regional crises, and built a cushion against any external or internal political pressure. BDL is committed to regulating banks' dealings with derivatives and structured products, restricting involvement in risky investments- the main reason behind massive debts accumulated on international banks- and it is insisting on policies that prevent any Lebanese bank from going bankrupt. Moreover, BDL is closely monitoring the performance of Lebanese banks operating in countries that are experiencing political turmoil. Our banks, whether operating in Lebanon or abroad, are abiding by international standards on good governance, risk management, transparency and capitalization requirements; they are keen to keep clear and transparent relationships with correspondent banks.
BDL is also aiming at strengthening banks capital funds in order to attain a capital adequacy ratio of 12% by the year 2015. Capital adequacy has reached 7% among Lebanese banks and this is the ceiling required by international standards (Basle III). BDL is attempting to increase this ratio as a further prudential measure to exercise better control and protect the banking sector by sending positive signals at the international level.
Moreover, circulars issued in 2011 have revealed BDL's ongoing efforts to improve corporate governance, reinforce anti-money laundering measures, and deepen the regulation and supervision of financial institutions, brokerage firms and money dealers. BDL is still emphasizing the clear separation between the role of commercial banks and investment banks in order to protect both banks and customers interests. In fact, BDL aims to preserve the banking sectors conventional approach toward monetary policy, by insisting that commercial banks in Lebanon won't be allowed to make any investments in financial markets, based on the capital markets law which was recently approved by the Lebanese Cabinet.
In parallel, confidence in the Lebanese currency has allowed BDL to direct loans towards productive and socially beneficial sectors such as housing, education and environmentally-friendly projects. This has led to significant increases in loans to the private sector which have exceeded those to the public sector. BDL believes that loans to the private sector are essential to stimulate the Lebanese economy. In 2011, BDL has extended incentives on housing and other loans earmarked for development.
With the current regional and domestic political climate not being supportive of major fiscal initiatives, government plans to establish a sovereign wealth fund from the expected proceeds from the exploitation of offshore oil and gas reserves would reduce the debt level and benefit the Lebanese economy. The key challenge remains in reducing the size of the yearly growing budget deficit, while maintaining macroeconomic stability and laying the foundation for a more dynamic economy.
- The Governor and Vice-Governors;
The Banque du Liban is managed by the Governor assisted by four Vice-Governors,and the Central Council.
The Governor is the legal representative of the Banque du Liban, and has extensive authority on the management of the Bank. He is entrusted with the enforcement of the Code of Money and Credit, and the implementation of the Central Council's resolutions. Upon the proposal of the Minister of Finance, the Governor is appointed by decree sanctioned by the Council of Ministers, for a renewable six- year term.
After the consultation with the Governor and upon the proposal of the Minister of Finance, the Vice-Governors are appointed by decree sanctioned by the Council of Ministers for a renewable five-year term. They assist the Governor in managing the Bank, carrying out functions specified by the Governor. In addition, they assume their duties as members of the Central Council.
- The Central Council;
The Central Council sets the monetary and credit policies of the Bank, including money supply, and discount and lending rates. It discusses and decides, among other things, on issues concerning the banking and financial sectors, the establishment of clearing houses, the issuing of currency and on loan requests by the public sector entities. The Council decides also on the rules and procedures that govern the staff and operations of the Bank, and on its annual budget and accounts.The members of the Central Council are:
- The Governor, as chairman;
- The four Vice-Governors;
- The Director General of the Ministry of Finance, ex officer but strictly as member of the Council;
- The Director General of the Ministry of Economy and Trade, ex officer but strictly as a member of the Council.
In Lebanon, the Banque du Liban (BDL), the central bank of Lebanon, owns and operates the major clearing and settlement systems as the final settlement of payment obligations among the participants in the banking and financial systems is done at the BDL. The BDL as the ultimate source of liquid funds to these systems is concerned about the soundness and the safety of these systems.
The main payment instruments used by the public are cash, cheques and payment cards. Settlement for cheques in domestic and foreign currencies is done through BDL's Clearing Houses. Settlement of local ATM transactions using a card issued in Lebanon started to take place through BDL in February 2003.
Payment instructions for the banking and financial sector are settled primarily by the BDL for BDL account-holders. International transfers not executed through the BDL are transacted through banks proprietary networks.
The clearing and settlement of financial instruments is carried out through Midclear, the Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East. Midclear is also the central depository for Lebanon and is the central registrar for bank shares.
- Currency of Lebanon:
- Lebanese pound
- List of Central Banks:
- Central Banks
- Official website of Banque du Liban:
- Ministry of Finance of Libanon:
- Association of Banks in Lebanon:
- Special Investigation Commission (Money Laundering):