A case for Bitcoin? Lebanon devalues official exchange rate by 90%
Lebanon has adopted a new exchange rate of 15,000 pounds per US dollar, forcing a 90% devaluation from its previous rate which had not changed for 25 years.
The rate change from 1,507 is still way off the parallel market, where most trades take place. Per Reuters, market participants said the pound exchanged hands at around 59,000 per dollar on Tuesday.
Lebanese officials have described the adoption of the new exchange rate as a step towards unifying an array of rates that emerged during the crisis. But since the financial meltdown in 2019, propelled by unchecked corruption, spending and mismanagement by the ruling elite, the Lebanese pound has lost any semblance of good repute.
Currency devaluation by self-anointed, omnipotent central bankers is a tale as old as fiat.
Devaluing currency has a number of negative side effects for ordinary citizens, such as increased import costs, reduced savings and wages, lower purchasing power, decreasing foreign investment, loss of confidence in the currency and of course, inflation. Together, these factors ultimately create the foundation for a lower standard of living for normal, everyday Lebanese citizens.
From the 2000s up until around 2010, depositors were enticed into Lebanon’s banking sector with high interest rates offered by local banks. The government would sell high-interest bonds to banks using the central bank, and those banks would then offer high interests on deposits, thereby attracting depositors.
To no one’s surprise, the system was not sustainable. The government couldn’t pay back the banks, which then couldn’t pay back depositors and the entire thing started to collapse. The central bank had to print money out of thin air to pay depositors, which led to a hyperinflationary collapse in the country.
Since 2019, the Lebanese pound has lost over 97% of its value versus the US Dollar.
This current official devaluation ‘plan’ is a last ditch attempt to appease the International Monetary Fund (IMF), which has laid out conditions for Lebanon to receive a $3 billion bailout loan.
Per Reuters, “the IMF has favoured an immediate unification of rates and has said Lebanese authorities should deal upfront with an estimated $70 billion in financial sector losses – widely viewed as the result of decades of profligate spending, corruption and mismanagement… The IMF deal is widely seen as the only way for Lebanon to begin restoring confidence in its financial system and recover from the collapse.”
If this tale doesn’t ring any bells, it’s time to read up on the Weimar Republic. Corrupt governments and bankers pretend to have separation of powers, print money, devalue the currency, line their pockets and mismanage hard-earned savings of citizens who do all the leg work – destroying the economy and impoverishing people along the way.
Once this cycle completes enough times locally, they then turn to international vultures over at the IMF, who are all too eager to join the frenzy and restart the cycle of monetary debasement and corruption. This is always detrimental to those who lack the privilege of working close to the money printer, which is always a consequence of political relationships.
The cherry on the cake is that devaluing the currency by 90% will do nothing for ordinary Lebanese citizens who cannot access their dollar savings held hostage by banks since 2019. They’d be better off using USDT, and then swapping that for Bitcoin if Tether joins the dark side.
For those in the Western world, it’s all too easy to think ‘that couldn’t happen here’. Nothing could be further from the truth. The latest Eurozone inflation figures expect annual inflation of 8.5% in January from 9.2% in December. This is how it happens – slowly, and then suddenly with momentary periods where the market is led to believe that ‘the worst is over’.
All fiat trends in the same direction – hyperinflation. When push comes to shove, everyone will end up going down the Bitcoin rabbit hole.
In February 2009, Bitcoin creator Satoshi Nakamoto posted on the P2P Foundation forum:
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
If anything that can happen will eventually happen, then facts speak for themselves. Central banks can debase a currency, inflate the supply or impose capital controls depending on their mood. On the other hand, Bitcoin and Litecoin operate on a transparent and entirely predictable monetary policy which is extremely resistant to such things.
The Bitcoin halving schedule refers to the part of the protocol which reduces the number of new coins created and released into circulation every 10 minutes. This event, which is known as ‘The Halving’, takes place every 210,000 blocks (around four years) and literally halves miner rewards for verifying and adding transactions on the blockchain.
When Bitcoin first started, the block reward was 50 BTC per block. In 2012, after the first halving this reward was reduced to 25 BTC per block. The second halving in 2016 reduced the reward to 12.5 BTC, and the third in 2020 to 6.25 BTC per block. The next halving in 2024 will once again slash the block reward to 3.125 BTC per block.
These cycles are also known as ‘epochs’; they are purposefully recursive, unchanging and predictable. There are only 21 million Bitcoin in circulation. Similarly, there will only every be 84 million Litecoin (silver to Bitcoin’s gold). No central bank can alter these propositions, and over 91% of coins are already in circulation.
Long story short, Bitcoin is in part a long-term savings technology for individuals looking to protect their wealth from currency devaluation. The brilliance of this innovation is that it can be self-custodied, which means central bank incumbents will have to go to extraordinary lengths in order to seize assets when the global sovereign debt crisis reaches boiling point.
Either that or central banks will take the easy route (as they tend to do) and capitulate.
Sooner or later, everyone needs bitcoin and Litecoin.
