Lebanese lira strong
unaffected by Turkish crash

World currencies tumble including

euro, rand, peso, ruble, and yuan

The Lebanese lira has not been affected by the jitters caused the crash of the Turkish currency. Many currencies around the world were caught by the contagion of the crash of the Turkish lira. The Lebanese currency will not be affected because it is well protected by large foreign asset reserves of the Central Bank (BDL), said Marwan Barakat, Chief Economist and Head of Research at the Bank Audi group.

BDL’s foreign asset reserves have reached more than $44 billion, which is equivalent to 82 percent of the Lebanese lira money supply, Barakat said. This is double the 41 percent average reserve adequacy of countries with similar ratings, and it gives BDL a robust capacity to defend the currency peg, he said.

The sharp depreciation of the Turkish lira is having a ripple effect on some currencies in emerging markets as investors fear contagion. In advanced economies, the exchange value of some currencies dropped while other currencies are considered safe havens, such as the U.S. dollar, the Swiss Franc, and the Japanese yen, all of which have gained in value.

The euro slid to a fresh 13-month low of $1.1365 before recovering slightly. Emerging market currencies slumped further, and the yen surged to a six-week high. South Africa’s rand was down, Mexico’s peso was lower and the Russian ruble also dipped, as did the Indian rupee and Indonesian rupiah. China’s yuan dropped by almost half-a-percent.

Turkey’s lira rebounded on Monday from record lows after its central bank pledged to provide liquidity and cut reserve requirements for banks, but the currency was still down around ten percent on the day. It has shed more than two-fifths of its value in 2018.

Toufic Karam, Head of Capital Markets at FFA Private Bank, said that the crash of the Turkish pound was mainly the result of a political clash between the United States and Turkey, and it is not having any impact on the local currency. The Lebanese lira is pegged to the U.S. dollar and is not an object of speculative trading, Karam said.

A prolonged low exchange value of the Turkish currency makes imports from Turkey cheaper and local exports to that country more expensive. Local imports from Turkey reached $777 million in 2017 while exports to Turkey totaled $120 million.

BNY Mellon’s Chief Currency Strategist Simon Derrick said to Reuters that without more meaningful action from Turkish authorities, there would be more pressure on the Turkish lira. “With signs of contagion already starting to emerge elsewhere ... in a fragile August market, the worry must be that risk aversion returns very rapidly,” he said. The news agency cited Ulrich Leuchtmann, foreign exchange strategist at Commerzbank in Frankfurt as saying: “The big fear in the market is that we are headed for a full-blown emerging market crisis.”