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Analysis

Sayrafa Explained: How Lebanon’s Central Bank Quells Unrest by Subsidising Elites

"A weak and inefficient monetary tool"
Jonathan Cole

June 14, 2023

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The Sayrafa electronic exchange platform is the primary means by which Banque du Liban (BDL), Lebanon’s central bank, intervenes in the country’s currency market.

When the Lebanese lira is in trouble and collapsing in value, Sayrafa is how the BDL swoops in to save the day, injecting the market with United States dollars to steady the exchange rate and save the population from further inflation and hardship.

That’s the story the bank would have you to believe anyway – and given that the central bank has kept us almost completely in the dark about how the platform is being used, it can be hard to prove wrong.

The indicators that are available, however, point to a very different story. Since the beginning of 2022, the BDL has announced six interventions in the currency market using Sayrafa, with all but the most recent, in March 2023, having limited impacts on the market exchange rate.

In reality, the largest function of Sayrafa appears to be to act as a subsidy for banks, importers, businesses and the wealthy, by selling them US dollars at a substantial premium relative to the parallel market exchange rate and then allowing them to profit from arbitrage. This appears to constitute most of the money traded on the platform.

As the value of the lira has collapsed since 2019 and the value of local salaries with it, the patronage networks the political elite have sustained through the public sector have been unraveling. The BDL allowing civil servants to withdraw their salaries in dollars exchanged at the Sayrafa rate thus also acts as a subsidy for these workers. While the amounts traded for this purpose on the platform are fractional relative to the volume of large-scale money trades, they offer a degree of relief for public service employees that has likely quelled even greater unrest than the country is already experiencing, thereby helping the political elite to maintain some relevance among their constituencies.

In the following explainer, The Alternative examines the BDL’s much-touted Sayrafa platform and deconstructs the hype.

How BDL sinks, then stabilizes, the lira

During April and May, the parallel USD/LL rate plateaued between 97,000 and 94,000, marking what on the surface appears to be a successful move by the Banque du Liban (BDL) to wrestle the volatile lira under control. This period of relative calm came after the central bank announced it would begin selling an unlimited number of fresh dollars to prop up the lira after a sharp drop in its value in March, when the price of a dollar touched 141,000 LL.

The central bank has injected dollars into the Lebanese economy in the same manner five times since the beginning of 2022, although previous interventions saw comparatively less success than the most recent. The Sayrafa should thus be considered a “weak and inefficient monetary tool”, as the World Bank noted in a recent report, with only a low overall correlation between interventions and the exchange rate.

The central bank established the electronic payment platform internally in 2020 and between May and August 2021 expanded its scope, mandating commercial banks to conduct their foreign currency transaction exclusively on Sayrafa. Large commercial money exchangers, importers and other high-wealth clients have also anecdotally been given access, as have public sector workers, though due to the opacity the BDL has maintained regarding Sayrafa operations, the entities and individuals with access remains unclear.

Among the goals was to bring large-scale currency trading into a single, formal platform and tame the burgeoning unregulated market, where rampant speculation and manipulation were helping to induce wild exchange rate swings. The enticement for commercial players to participate was that the BDL continually set the Sayrafa exchange rate at a substantial premium to the parallel market, overvaluing the lira and making it the go-to marketplace in which to buy cheap US dollars, on average discounted by 21%. This preferential exchange disincentivizes any party, other than the BDL, from selling dollars on the platform, and thus, as the World Bank concludes, we can assume that the central bank is the only foreign currency vendor on Sayrafa.

The BDL, however, has been silent about where it is getting the dollars it is putting up for sale. They are thought to be a mix of dollars the central bank has bought on the parallel market, and the BDL’s own foreign exchange reserves, with the lion’s share of the cocktail coming from the former.

Take the most recent central bank intervention, the sixth since the beginning of 2022, that the BDL initiated March 21, 2023. In April, the total volume of dollars traded through Sayrafa amounted to US$1.22 billion. In parallel, however, the BDL’s foreign exchange reserves only fell US$127 million. So where did the other US$1.09 billion come from?

Remember, the lira crashed just prior to the BDL intervention. The World Bank suggests it was the central bank itself that was the market mover, using lira it prints to buy huge amounts of dollars out of the parallel market, thereby temporarily tanking the lira exchange rate. This can be seen in the volume of lira in circulation exploding from 67 trillion to 83 trillion between January 15 and February 28, an increase of 24 percent in just six weeks. The most recent Sayrafa intervention then saw the BDL using the platform to sell these dollars for lira at a loss, reabsorbing the excess printed domestic currency from the market and leading lira in circulation to quickly drop again to 67 trillion by April.

A senior official at one of Lebanon’s largest commercial banks, who spoke with The Alternative on condition of anonymity, described a dynamic in which the BDL in effect uses its foreign exchange reserves to cover the difference between the black-market rate and the rate it sells dollars on the Sayrafa platform. 1

This cycle, of the BDL buying dollars from that market and selling them at a loss on Sayrafa, is inherently unsustainable. Sayrafa represents the central bank and government buying themselves time with everyone else’s money, whilst failing to address the serious systemic issues that led to the financial crisis and further impoverishing the nation. The Sayrafa platform is not only an ineffective monetary policy tool, but another orchestrated transfer of wealth from the public purse to the elite, while also serving to maintain the country’s prevailing power.

Enriching the rich while feeding peanuts to the public service

Since its inception, the Sayrafa has generated more than US$2.5 billion in arbitrage for those permitted to use the platform, namely banks, importers, and big business, among others, according to the World Bank. This is excluding the amount that Lebanon’s civil service has benefited through being able to withdraw their salaries in dollars at the Sayrafa rate.

Determining exactly how much civil servants have benefited is difficult, given that the different branches of government, and different levels of employees within those branches, are able to withdraw their salaries varied Sayrafa rates. Looking at cumulative figures, however, it is apparent that the amount civil servants could benefit from is fractional relative to the overall volume of sales on the Sayrafa platform.

For instance, total trading volumes on the Sayrafa platform for March, April and May were US$1.1 billion, $1.22 billion and $2.41 billion, respectively, according to the BDL. Meanwhile, civil servant salary costs for each of these months were between US$33 million and US$35 million, based on the 2022 budget and the public sector salary raises since, when calculated at the parallel market rate. This puts the total possible amount of dollars public servants could have bought on the Sayrafa during this period in the range of 2 percent to 3 percent.

While minuscule relative to how much big money traders are benefiting, this effective subsidy for public employees is nonetheless significant for the prevailing power structures and social stability. Inflation and the declining value of lira-based public sector salaries have posed a direct threat to the political class, undermining the extensive patronage networks they have entrenched in throughout the civil service to maintain purview over their respective sectarian communities. Mass civil service strikes demanding better pay have disrupted public services for over a year and retired civil servants have regularly protested outside the Grand Serail for an increase in pensions. Some 5,000 members of the Lebanese Armed Forces have also left service without authorisation since 2019.

Such unrest spurred the government to increase public sector salaries. The 2022 budget passed late last year roughly tripled government workers’ lira-based incomes, followed by a further temporary bonus issued by cabinet decree in April. This amounts to a quadrupling of employee salaries relative to January 1, 2020. This has increased monthly government expenditure on salaries from LL1.1 trillion to LL3.7-3.9 trillion, equating to between $33 and 35 million per month at the 94,000 LL/USD parallel market rate. Being able to withdraw salaries in dollars at the Sayrafa rate further subsidizes government salaries, helping to keep the existing social contract between political sectarian leaders and their constituents.

The Sayrafa platform thus constitutes yet another means the Lebanese elite have orchestrated to continue robbing the public purse while feeding the population peanuts.

Banque du Liban did not respond to multiple requests for comment for this article.

ENDNOTES

  1. According to The Alternative’s Sources.

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