The Lira exchange rate has been fixed since 1997, when BDL decided to adopt an official fixed rate of LL1507/dollar.

The goal was to stabilize the currency after periods of heavy Lira depreciations and inflation suffered from the second half of the mid 80s until 1992.

The policy has been criticized for keeping the same rate to the dollar for so long, given that it was often judged for many years to be at least 50% overvalued relative to the US dollar.

There are people who have argued that Lebanon should have gone to a stricter peg with a currency board, which would complement the high level of dollarization while ensuring greater monetary and fiscal discipline.

At the other end of the spectrum, others have argued it should have had a managed soft floating rate, which can stabilize balance of payments issues via adjustments in relative prices with foreign economies.

It should be noted that floating exchange rates are not inherently better or worse than fixed exchange rates. It crucially depends on the context and the range of accompanying policies made by the government.

While floating exchange rates have been adopted by most large advanced economies since the 1970s, a fixed exchange rate can create a stabilizing financial and macro environment for small countries. This can help increase trade volumes, foreign investments, and financial linkages with the outside world.

However, a fixed exchange rate can also become overvalued over time, creating distortions in the form of undervalued imports, foreign travel bills, government borrowing; overvalued exports; and labor market distortions. These all aggravate balance of payments problems.

It is the state that should maintain fiscal discipline, commit smart investments, promote industrial policy, regulate banking policies, enact supply-side structural reforms, and support a soft-landing devaluation if necessary, to avoid the potential side effects mentioned above.

There were opportunities for such actions. Paris I, II, III, Cedre…etc…

In the end, it was much easier to kick the can down the road. While the music was on, the cats continued to dance…