The BDL independence and the determinants of the economic crisis in Lebanon

Abstract : This article aims to identify the concept of Central Bank independence which has spread in the 1980s with the tendency to separate fiscal policy from monetary policy to allow the latter to fight with credibility and efficiency for its objective of monetary stability and control of inflation. However, the 2008 financial crisis challenged the requirement of Central Bank independence through Unconventional Monetary Policies (UCMPs). In view of the current collapse of the Lebanese economy, it would be interesting to consider the case of Banque du Liban (BDL), endowed with a certain statutory independence but suffering from weak functional independence. By referring to the model of Jácome (2001) adequate for dollarized economies, we demonstrate that the BDL lacks effective independence which results in its acceptance to comply with the continuous requests of the Public Treasury to contribute to the financing of a growing public debt, part of which in foreign currencies. The BDL maintains a rigid anchoring of the exchange rate in a highly dollarized economy and involves the entire banking system in PMNCs which it calls “financial engineering” and which contribute to the current multidimensional collapse (budgetary, monetary and banking).

Keywords : Central Bank independence, Lebanon, Unconventional Monetary Policies, public debt financing, dollarization, banking system, monetary stability, anchoring of the exchange rate.

JEL classification : E58.

DOI: https://doi.org/10.18559/RIELF.2022.2.1