Last Updated 15 Apr 2020

The History of Establishment of Bank of Lebanon

Category Bank, History
Essay type Research
Words 1549 (6 pages)
Views 516

Following the downfall of the Ottoman Empire in September 1918, the Turkish Pound was replaced by a Sterling based Egyptian currency as legal tender in the states under the French and British mandate. The Egyptian Pound was issued by a private British institution, the National Bank of Egypt, and had been previously used by the British, since much of their supplies were from Egypt.

After taking Lebanon and Syria under its mandate, the French government sought the substitution of the Egyptian currency in order to alleviate the burden on the French Government in covering its expenditures in Egyptian Pound, and to assert its independence from the British. However, the use of the post war French Franc would have further exhausted the French Treasury.

The alternative was to grant a commercial bank the exclusive right to issue a currency for the States under Mandate.

Don't use plagiarized sources. Get Your Custom Essay on

The History of Establishment of Bank of Lebanon

just from $13,9 / page

get custom paper

The Banque de Syrie, a French company affiliate of the Ottoman bank, was established in 1919 with an initial capital of FF. 10 million, later increased to FF. 25.5 million. Of its 51 thousand shares, about 22% were owned by the Ottoman bank and 78% by French shareholders.

1924-1964: The Banque de Syrie et du Liban

In January 1924, a convention was signed between the Banque de Syrie, and Lebanon and Syria as States under the French Mandate, following the constitution of their national government.

As the political status of Lebanon evolved, the Banque de Syrie, which was to act as the official bank of the states under the French Mandate, was renamed the Banque de Syrie et du Liban (BSL).

BSL was granted the following privileges by the 1924 Convention including:

The sole right to issue the French-based-Lebanese-Syrian currency in Lebanon and Syria for 15 years, at FF. 20 to the pound. These could be redeemed at the main office in Paris or its branch in Marseilles.

Special rights regarding securities pledged as loan guarantees

The sole custody of government funds

Preference for its services with local governments

The issue of the Lebanese-Syrian currency were governed by the 1924 Convention and covered by:

Gold and convertible foreign government bonds

Mandatory French Franc interest earning deposits

Other (optional) French Franc demand deposits

Claims drawn on or guaranteed by the French government

Two years before the expiry of the 1924 Convention, BSL's privilege to note issue a Lebanese currency in Lebanon, separate from the Syrian currency, was extended for another 25 years by the 1937 Convention, ending in March 1964.

The notes issued by BSL were no longer subject to a ceiling but were subject to an obligatory and optional coverage. They were of two series; one carrying the name "Lebanon" and the other "Syria", but both could be used indiscriminately in either state.

Although the currency was Lebanese in name, it remained a disguised French Franc, until 1941 when it was linked to the Sterling Pound after the defeat of France and the invasion of Lebanon by the allied forces. However, the coverage of the Lebanese Pounds issues was still in French Francs, which was constantly depreciating or devaluated.

Lebanon was to collect any loss in the value of its assets in French Francs covering the issue of Lebanese notes by the Franco-British agreement of 1944. The corresponding burden on France and Lebanon's will to achieve monetary independence, necessitated a dissociation between the Lebanese Pound and the French Franc.

Following its independence in 1943, Lebanon concluded a monetary agreement with France in 1948 separating its national currency from the unstable French Franc, and asserted the independence of its monetary system by promulgating the Monetary Law of 1949.Concurrently, the distinction between the Issue Department and the Commercial Department was fully effected. In April 1963, a commercial bank, the Societe Nouvelle de la Banque de Syrie et du Liban s.a.l. was created to replace the Commercial Department, and in April 1964, the Issue Department was transformed into the Banque du Liban.

Banque du Liban (BDL) was created by the Code of Money and Credit enacted by decree no. 13513 dated August 1, 1963. It started its effective operations on April 1, 1964.

BDL is a legal entity of public law enjoying financial and administrative autonomy but is not subject to administrative regulations and supervisions applicable to the Public sector.

Its initial capital was LL.15 million, an amount appropriated by the State.

BDL is the sole custodian of public funds and is vested by law the exclusive privilege of issuing the national currency.

BDL includes an administrative body and a managerial body, as well as other specialized entities. The Government Commissariat supervises it.

As stipulated in article 70 of the Code of Money and Credit, the Banque du Liban (BDL) is mainly concerned with the safeguarding of the currency in order to ensure a basis for sustained social and economic growth. Its basic responsibilities specifically include:

safeguarding the currency;

maintaining economic stability;

maintaining and safeguarding the soundness of the banking system;

Developing the money and financial markets.

To fulfill its major functions, BDL cooperates with the Government to ensure exchange rate stability, control liquidity, impose credit restrictions, and issue banking regulations.

Cooperation with the Government involves coordination of fiscal and economic policy measures to ensure a certain harmony between its objectives and those of the Government, suggestions benefiting various economic variables to promote economic growth, and advice on issues regarding the Lebanese currency.

Exchange rate stability entails the use of all measures BDL sees appropriate specifically intervention in the market to buy and sell foreign currencies.

The control of liquidity involves changes in discount rates, loans granted to banks and financial institutions, intervention in the foreign exchange market, open market operations, imposition of reserve requirements on assets and/or liabilities as well as penalties for shortfalls in their formation, and/or the receipt of deposits from banks.

It can also affect the volume of credit and the general credit situation by determining the volume of certain types of credits, credit granted for specific purposes, credit granted for specific sectors, and setting the terms and regulations of credits.

BDL can issue regulations to ensure the soundness of the banking system. It can set, in consultation with the Lebanese Banks Association, regulations governing the relation of banks with their customers, and banks liquidity and capital adequacy. It has the power to regulate asset to liabilities ratios on all or selected banks to be met at a date specified by BDL.

Banque du Liban (BDL), the central bank of the Republic of Lebanon, was created by virtue of Law No. 13513 dated August 1, 1963. Banque du Liban is a separate public legal entity – not a governmental department – and is vested with financial and administrative autonomy. The management of the BDL is undertaken by a Governor assisted by four Vice-Governors, all together constituting the Governorship of the BDL, as well as by a Central Board chaired by the Governor and composed of the Vice-Governors, the Director-General of the Ministry of Finance and the Director-General of the Ministry of Economy and Trade.

The Banque du Liban is the sole custodian of public funds, supervises and regulates the banking system and is vested by law with the exclusive authority of issuing the national currency. The BDL"s primary role is to safeguard the currency and promote monetary stability, thereby creating a favorable environment for economic and social progress. The Banque du Liban also advises the Government on various economic and financial matters. In conducting its monetary management function, Banque du Liban utilizes a wide range of instruments, including reserve requirements on Lebanese Pound deposits with commercial banks, liquidity requirements on US Dollar deposits in commercial banks, Treasury Bill repurchase and swap agreements with commercial banks, as well as Lebanese Pound denominated certificates of deposits issued by the BDL.

As a result of high inflation prior to 1992, the Lebanese economy became substantially dollarized. Since October 1992, monetary policy has been targeted at stabilizing the Lebanese Pound exchange rate and controlling the inflation rate and money growth. The return of confidence in monetary stability and the high returns on investment in LBP-denominated financial securities led to a significant decline of the dollarization of the economy and to a build up in foreign exchange reserves.

The Banque du Liban is managed by the Governor who is assisted by four Vice-Governors, as well as by the Central Council.

The Governor is the legal representative of the Banque du Liban, and has extensive authority on the management of the Bank. He is entrusted with the enforcement of the Code of Money and Credit, and the implementation of the Central Council's resolutions. Upon the proposal of the Minister of Finance, the Governor is appointed by decree sanctioned by the Council of Ministers, for a renewable six- year term.

After the consultation with the Governor and upon the proposal of the Minister of Finance, the Vice-Governors are appointed by decree sanctioned by the Council of Ministers for a renewable five-year term. They assist the Governor in managing the Bank, carrying out functions specified by the Governor. In addition, they assume their duties as members of the Central Council.

The Central Council sets the monetary and credit policies of the Bank, including money supply, and discount and lending rates. It discusses and decides, among other things, on issues concerning the banking and financial sectors, the establishment of clearing houses, the issuing of currency and on loan requests by the public sector entities. The Council decides also on the rules and procedures that govern the staff and operations of the Bank, and on its annual budget and accounts.

Remember. This is just a sample.
You can get your custom paper from our expert writers

get custom paper

Cite this page

The History of Establishment of Bank of Lebanon. (2018, Jun 07). Retrieved from https://phdessay.com/the-history-of-establishment-of-bank-of-lebanon/

Not Finding What You Need?

Search for essay samples now

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Your Deadline is Too Short?  Let Professional Writer Help You

Get Help From Writers