Governor of the Bank of Lebanon, Governor of Lebanon

By Beydoun Ahlam (Pr. of Law)

If we go back and read what the central bank's functions are, it will soon be seen to us, in a country like Lebanon, that the governor of the central bank is the ruler of Lebanon.

The Central Bank is an institution that oversees monetary affairs and is the main instrument by which the Government intervenes to implement its economic and financial policies, with a kind of autonomy that allows it to express opinions, advise and advise the Government, and direct and monitor the work of commercial banks. We can explain this in a nutshell by mentioning the central bank's most important functions:

1-     The central bank is a issuing bank, it has a monopoly on the issue of money, i.e. it is responsible for determining the size of the monetary mass in a country. Since this process is of great importance because it is in the public interest, it is therefore subject to constraints in terms of quantity and manner. That is, the government places restrictions on the central bank to ensure that sufficient amounts of money is issued without extravagance, so that   the balance between what goes in and out of money is secured. The u.S. currency, however, has imposed  any dollar as a currency to cover the issuance of money as gold.   

2-     The Central Bank is the last lender: as a result of its relationship with commercial banks, and i hope for a very important facility, the banking sector, especially in a country such as Lebanon, where the sector is the main stay in the national economy, the Central Bank is considered the guarantor of commercial banks and the guide to its credit policy. Commercial banks are in crisis as a result of their continued lending, so that the amount of liquid money they have is reduced, and if this happens, and if depositors often resort to asking for their deposits, the banks facing it find no way but to go to the central bank to fill their deficits. Central Bank loans are debt to the national economy because money is the means to obtain goods and services. Restore. This is where crises arise and worsen.

Commercial banks do not receive free central bank money, but rather in return for in-kind assets, such as buildings, liquid assets, or interest.  

The Central Bank resorts to imposing its terms and directives on borrowing banks, such as recommending a tightening of credit, requiring banks to raise their fixed assets, or increasing their capital, as happened recently, when the Governor of the Bank of Lebanon asked commercial banks to increase their voluntary capital. The central bank's interest in lending to commercial banks is higher than the market rate, forcing these borrowers to increase their approved interest, which, on the one hand, leads to the reluctance of individuals to borrow, resulting in a credit tightening, which is a punishment for the borrower bank, but on the other hand, the high interest rate stimulates the public to increase the deposit with the bank, which is a positive factor.

3-     The Central Bank is the government bank: as a result of its relationship with the government in the country to which it belongs, and its relationship with commercial banks, and the financial market, the central bank is accredited by various governments as a financial and economic advisor, and the government deposits its savings, and borrows from it if it encounters a budget deficit.

The central bank retains foreign currencies, and with gold coverage, the central bank usually relies on the central bank to place all its deposits in it, which reduces liquidity in the market, forcing financiers to turn to commercial banks to make up the shortfall by withdrawing their deposits or part of them.

Perhaps the dual characteristic of the central bank, on the one hand, is the bank of government that sets out the outlines that it should follow, and on the other hand it is independent of the government, and considers its financial and economic advisor, this double characteristic is confusing and wasted responsibility.

4-     Credit control: Credit control is the central bank's most important function.

Quantitative control is intended to influence the volume of credit by affecting the volume of cash reserves, and thus affecting the total volume of bank-loans.

أ‌-      Quantitative control: The Central Bank follows in the practice of quantitative control of credit in three ways:

-       The re-discount policy, which is the interest rate charged by the Central Bank to commercial banks for loans, or in exchange for re-discounting their bills or treasury bills.

-       Open market operations: The central bank itself sells or buys government securities on the financial market. On the contrary, the central bank's purchase of central securities results in an increase in cash balances.

-       Adjustment of legal reserve ratios: means adjusting the ratio of cash reserves to deposits

-  How to control how to influence the use of credit, the place of control is how to deny loans and not the reserves in quantitative control,

-  Direct control: The monetary policy adopted by the Central Bank and taken by commercial banks by the moral authority of the Central Bank. This is in addition to the binding instructions issued by the Central Bank and permitted by law.

5-     The Central Bank conducts normal banking, i.e. like any commercial bank.

Thus, it is clear to us how important the role of the Central Bank is to influence the work of banks, and through this to the activity of the economic sectors, through a policy of credit reduction or increase. The more fiscal policy, budgetary and public debt, aligns with the central bank's plan, the greater its impact. In Lebanon,dysfunctional budgets, inflation of public debt due to corruption and looting of public funds have enabled the Central Bank to play a key role in influencing the management of matters in Lebanon, not only monetary and financial, but also  economic. Wed o not exaggerate if we say today that the Governor of the Central Bank is the ruler of Lebanon.

Dr. Ahlam Beydoun

7/1/2020