Jan 31, 2023 at 23:42 UTC774510
Lebanon is set to devalue its currency by 90% on February 1st, as the country’s central bank governor, Riad Salameh, announced that the new official exchange rate will be 15,000 pounds per US dollar. This marks a significant decrease from the current official rate, which has remained unchanged for 25 years at 1,507 pounds per US dollar, and a far cry from the parallel market ratewhere the pound was changing hands at around 58,000 per dollar on Tuesday.
Currency devaluation by central banks creates a number of negative consequences for ordinary citizens: increased cost of imports, reduced value of savings and wages, reduced purchasing power, reduced foreign investment, widespread loss of (any remaining) confidence in the currency, and increased inflation . All of these factors ultimately lead to a lower standard of living for hardworking Lebanese citizens.
In the early 2000s up until the late 2010s, depositors in Lebanon’s banking sector were lured in by high interest rates offered by local banks. The government would sell high-interest bonds to the banks through the central bank, which would then allow the banks to offer high interest rate deposits to attract depositors (Thomas Semaan breaks this down in greater detail in his piece for Bitcoin Magazine).
Unsurprisingly, this system was not sustainable. The government could not pay back the banks, which then could not pay back their depositors. The central bank started printing money and paying back the depositors, leading to hyperinflation in Lebanon.
Since 2019, the Lebanese pound is down over 97% versus the US dollar.
This current official rate devaluation plan is a desperate bid to appeal to the International Monetary Fund (IMF), which has set conditions for Lebanon to receive a $3 billion bailout to include unifying multiple exchange rates.
The IMF has favored 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.
It’s a tale as old as fiat: corrupt governments and bankers print money, devalue the currency, and mismanage the hard earned savings of their citizens, destroying the economy and impoverishing their people along the way.
Then they turn to the vultures at the IMF, who are all too willing to join the party and continue the cycle of corruption and mismanagement, all to the detriment of those who lack the privilege of working in close proximity to the money spigot.
The worst part of the upcoming devaluation is that it will do nothing to help ordinary Lebanese citizens access their dollar savings, which have been held hostage by Lebanese banks since 2019.
For those of us who live in the Western world, it’s easy to think “that could never happen here.”
Perhaps you have yet to go down the rabbit hole and still wonder “who needs Bitcoin?”
Satoshi Nakamoto posted on the P2P Foundation forum in February 2009:
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.
While central banks can devalue a currency, inflate its supply, or impose capital controls on a whim, Bitcoin operates on a transparent and predictable monetary policy that is resistant to such actions.
Bitcoin’s halving schedule refers to a built-in mechanism in the Bitcoin protocol that reduces the amount of new Bitcoin created and released into circulation every 10 minutes.
This event, known as The Halving, occurs every 210,000 blocks (about four years) and halves the block reward given to Bitcoin miners for verifying transactions and adding them to the blockchain.
Originally, the block reward was 50 BTC per block. After the first halving in 2012, the block reward was reduced to 25 BTC per block. The second halving in 2016 reduced the block reward to 12.5 BTC per block and the third halving in 2020 reduced it to 6.25 BTC per block. The next halving in 2024 will reduce the block reward to 3,125 BTC per block.
There will only ever be 21 million Bitcoin and no government or central bank can change that. Over 91% are already in circulation, however millions are likely lost forever.
Bitcoin provides a safe haven for individuals looking to protect their wealth against currency devaluation and other forms of monetary manipulation.
Sooner or later, we will all need Bitcoin.
Walker is the Managing Director of BTC Times, you can find him on Twitter: @WalkerAmerica