2023-11-11 22:08:04
The Bank of Lebanon’s semi-monthly budget no longer includes many exciting changes, following the bank’s central council committed itself since the departure of Riad Salama to a policy of not touching reserves. This budget no longer reflects the continuous depletion in the value of ready liquidity owned by the Bank of Lebanon, which is what observers usually expected every 15 days. However, this budget still reflects some changes that are worth paying attention to from time to time, especially those related to the composition of the budget and the size of assets with guaranteed and certain value, such as gold reserves, whose value in the budget varies according to the prevailing prices of gold in the market.
In any case, it is important to point out that this type of change, such as the value of gold reserves, directly affects the size of the accumulated losses in the budget, which in turn is related to the percentage of loss that affected depositors’ funds, which commercial banks invested in the central bank. It is natural to expect that these changes will be included in the upcoming government financial plans, if they come to light one day, following it became clear that the current government plan has become locked in the drawers, just like the agreement on the level of employees that was signed with the IMF – on the basis of this plan – In April of last year. Noting that the most recent visits of the Fund mission reflected clear political reluctance in the face of the reforms stipulated in this agreement.
Within a year: $3.28 billion profit
According to the budget recently published by the Central Bank, which reflects the bank’s financial position at the beginning of this month, the value of the gold reserves owned by the bank amounted to regarding 18.42 billion US dollars, compared to 17.37 billion dollars only 15 days ago, that is, in the middle of last October. In this sense, the value of gold in the Central Bank’s portfolio increased by regarding $1.05 billion, within a period not exceeding just two business weeks. This interesting transformation took place due to the very rapid rise in the value of gold in global markets during the second half of last October.
If we want to compare on an annual basis, it can be noted that the value of the gold reserves in the bank’s possession amounted to 15.14 billion US dollars in late October of last year, that is, in the period exactly similar to the period of issuing the last semi-monthly budget. In this way, the Bank of Lebanon has earned $3.28 billion during the one-year period, as a result of the rise in the value of the gold item between the two periods. Noting that the global markets witnessed during this period a group of financial and banking turmoil, which contributed to the rise in gold prices in this way, which was ultimately in the interest of the Central Bank.
Implications of the current crisis
Aside from boring accounting numbers, the impact of this development on financial conditions in the long term cannot be underestimated, and even its impact on important issues related to the crisis of banks and depositors. The size of the losses that have accumulated in the Bank of Lebanon’s budget, which is considered the basis of the current banking crisis, is precisely the difference between the Central Bank’s real assets in hard currency, and the obligations it owes to banks in foreign currencies. These losses are what prevent the restoration of confidence in the financial system, and its regular functioning, as these losses mainly affected bank funds deposited in the Bank of Lebanon.
The increase in the value of the gold item by this value, between October of last year and October of this year, simply means an increase in the value of the Bank of Lebanon’s real assets by this value, that is, a reduction in the value of the accumulated losses in parallel. This development does not necessarily mean a call for using gold to pay the value of deposits, but it generally means an improvement in the financial solvency of the Central Bank, which reduces the size of the gap that must be paid in the future.
It is important to point out here that the size of the total losses in the Bank of Lebanon’s budget, as estimated by the government’s financial plan, is equivalent to regarding 60 billion dollars (in addition to regarding 13 billion dollars in losses from commercial banks’ budgets, and these losses are independent of the Central Bank’s budget). In other words, the size of the improvement in the value of gold reserves amounts to regarding 5.4%, of the total amount of accumulated losses in the Central Bank’s budget, which represents the basis of the current crisis.
Shifts in the central financial reserves
At the level of financial reserves, that is, ready and usable liquidity, external assets at the end of last October amounted to regarding 14.14 billion dollars, compared to 13.99 billion dollars in the middle of the same month, that is, an increase of 150 million dollars between the two periods (knowing that this value The total includes more than $5 billion in Eurobonds owned by the Bank of Lebanon, which are supposed to be removed from the equation to show the actual value of liquidity.
In any case, it is not possible to determine from these numbers alone the source of this increase, and whether it is the result of the Bank of Lebanon purchasing dollars from the market, or whether it is the result of an increase in the value of reserves in euros due to a change in the exchange rate. Therefore, we can wait for the periodic statement of the Acting Governor of the Bank of Lebanon, to explain the reason for the changes in the value of reserves.
In conclusion, the most important thing is that the semi-monthly budget still reflects the fundamental problem in the bank’s entire financial situation, which is that the budget is filled with losses that have not yet been addressed. These losses are what turn the Central Bank into an institution incapable of managing the banking sector, in a way that allows the provision of the simplest banking services, represented by providing loans and receiving term deposits. Addressing this problem is impossible without a comprehensive financial plan, managed by a political authority that has the ability and intention to implement bold reforms, at the forefront of which is restructuring the banking sector and addressing the accumulated losses in the budgets of the Bank of Lebanon and commercial banks.
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