The Ministry of Economy has decided to adopt a policy of dollarizing prices for supermarkets, given the national currency’s volatility and the need to protect consumers and merchants. Despite this move, the public remains apprehensive about the process. Concurrently, public-sector employees have extended their strike, calling for the dollarization of their salaries in order to insulate themselves from further currency devaluation.

According to LIMS, the Lebanese pound (LBP) is now rarely used as a store of value and is only employed as a medium of exchange. Many Lebanese citizens prefer to carry US dollars, only converting them to LBPs for use in supermarkets, gas stations, restaurants, and shops. However, these businesses often convert the LBP back into US dollars due to a lack of trust in the LBP’s value. This cycle of currency conversion is costly and indicative of the pervasive lack of confidence in the LBP. Dollarization should be expanded to include other sectors, such as gas prices and hospitals. By setting prices for these services in Lebanese pounds, gas stations and hospitals could be compelled to cease operations each time the Lebanese pound is devalued.

On the other hand, LIMS warned of the risks of wage-price inflation spirals and insisted that no increase in public sector salaries should occur until the sector undergoes restructuring, given its high number of employees and low productivity. However, dollarizing wages would enforce a certain level of discipline upon the government, which is unable to print dollars and would thus be required to address its fiscal deficit before granting raises.

To achieve a more comprehensive dollarization, one approach would be to convert all contracts from LBP to USD, withdraw the LBP from circulation, and replace it with dollars. Alternatively, a currency board could be implemented, with all prices and contracts retained in Lebanese pounds while 100% of the currency in circulation is backed by USD reserves.

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