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Lebanon under the French mandate Ottoman domination of Lebanon, which lasted for more than four centuries, was brought to an end on October 6, 1918, with the entrance of the Levant Marine Division in Beirut roads. The paper money issued by the Turkish Treasury, with a forced exchange rate, suffered the same fate. In order to normalize economic life in the occupied territories and cover the expenses of the allied forces, English authorities imposed the banknote of the National Bank of Egypt, the Egyptian currency having been, since October 30, 1916, closely linked to the sterling and entirely covered by securities issued in sterling. In accordance with the convention signed between the French and the British governments on September 15, 1919, a new occupying authority started to rule Lebanon. French troops replaced the British, under the command of General Gouraud, who was appointed on October 12, 1919 as "High-Commissioner of the French Republic in Syria and Cilicia, and Commander-in-Chief of the Levant Army". Consequently, the use of the Egyptian currency, suitable for the British Treasury, became inappropriate. To obtain Egyptian pounds, France, being the sole occupying power, had to offer increasing amounts of francs. During the First World War, the French franc had maintained its status thanks to advances from the British and American Treasuries. However, in 1919, the French franc registered a drop because of the British government's decision to stop these advances, thus breaking the alliance between the franc, the sterling and the dollar, and also because of the US Government's decision to suspend its regulating role of the associated change rates. In order to replace the Egyptian pound, the French government decided, by Decree N° 129 issued by the High Commissioner on March 13, 1920, to endow Syria with a national currency. On September 1, 1920, the representative of France proclaimed Great Lebanon. In 1920, the Bank of Syria was granted the concession of issuing the Syrian currency, which became legal tender on May 1, 1920. Banknotes issued by this bank were reimbursable to the bearer or at sight by checks drawn on Paris, at the rate of FF 20 for one Syrian pound. As a consequence, an independent, currency-issuing department was established at the Bank of Syria. It was responsible for putting in circulation and withdrawing banknotes. Issuances were made either on behalf of the Treasury in Paris or on behalf of the Bank itself. Concerning commercial operations, the Issuing Department was to provide the Bank of Syria with banknotes only in exchange of foreign currencies or foreign securities, which constituted, together with the credits granted by the Treasury in Paris, the coverage of the currency in circulation.
The French-Lebanese-Syrian Convention of January 23,
1924 On January 23, 1924, under the chairmanship of General Weygand, a convention was signed between the French, the Lebanese and the Syrian governments. According to this convention:
The Convention of May 29, 1937 The Convention of January 23, 1924, was to expire on March 31, 1939. Meanwhile, the political status of the signatory states had changed. On November 1936, a treaty of friendship and alliance was signed between France and Lebanon for a 25-year period. As a result of successful negotiations between Lebanon and the Bank about the renewal of the concession to issue the currency for a 25-year period, the convention of May 29, 1937, was ratified on June 7, 1937. Following are the most important points of this Convention:
Mandatory:
Optional:
Pegging the Syrian and Lebanese pounds to the sterling and the franc Between 1939 and 1943, the control of the foreign trade and exchange system had been modified by a number of decrees. For this purpose, the French authorities established the Foreign Exchange Office at the Bank of Syria and Lebanon, and all exchange operations were subjected to its control. In 1941, the allied forces occupied Syria and Lebanon. A monetary agreement was concluded between the British Government and General De Gaulle, in which the official rate of the French franc was set against the sterling (£1 = 8,125831), with freedom of conversion between both currencies. Consequently, the Syrian and the Lebanese currencies became pegged to both the sterling and the franc. The pegging of the Syrian and Lebanese pounds to the sterling (£1 = LBP 8,125831) has had positive effects, given the sharp fluctuations of the franc and its successive devaluations. Between 1920 and 1940, the Syrian and Lebanese pounds had lost, according to some estimates, about 70% of their value against the dollar because of their pegging to the franc, which, during the period, had registered a decline against the dollar. Thanks to this Agreement, the military authorities were able to easily meet their needs in local currency for financing their expenses in Syria and Lebanon. The authorities used to hand foreign currencies to the Foreign Exchange Office, and the latter used to give them back pounds obtained as loans from the Bank of Syria and Lebanon. Then, the Foreign Exchange Office converted the foreign currencies into French francs at the Central Treasury of Free France for keeping them in an account opened in the name of Bank of Syria and Lebanon, in order to cover the increasing issues of Syrian and Lebanese pounds.
The French-English-Lebanese-Syrian Protocol of
January 25, 1944 In 1943, a new era of monetary independence started in Lebanon as a consequence of the newly-obtained political independence. In 1944, talks were started between the British government and the French Committee for National Liberation concerning a devaluation of the franc against the sterling. In order to avoid a depreciation of the Lebanese and Syrian pounds, the French-English-Lebanese-Syrian Protocol was signed in Damascus on January 25, 1944, setting the parity of the Lebanese pound at £1 = LBP 8.83 = FF 176.60, a rate that could not be modified without prior consultation with the Lebanese and Syrian governments. Thus, when the financial agreement between France and Great Britain was signed on February 8, 1944, setting the exchange rate of the franc at FF 200 against the sterling, the Lebanese pound was not devalued as it happened in the past, the free purchase of sterlings having been maintained. In consequence, the official rate of the Lebanese pound was maintained at LBP 8.83 against the sterling, and against the French franc, it stood at FF 22.65. Moreover, the pound was convertible in franc as well as in sterling. In case of a devaluation of the franc, the French Committee for National Liberation was committed to maintain the counter-value in sterling of the assets in francs of the Bank of Syria and Lebanon, including those recorded as coverage of the currency in circulation in Lebanon. However, the French government informed Lebanon, by a letter dated March 15, 1946, that it was no more possible to keep a system of free sterling transfer in Syria and Lebanon. Then, by a letter dated August 30, 1947, the French government deemed preferable to officially terminate the Agreement of January 25, 1944, which had become obsolete.
Lebanon joining the IMF and the World Bank On April 22, 1947, Lebanon became member of the International Monetary Fund and of the World Bank (the International Bank for Reconstruction and Development). Since Article 4, Section (a) of the IMF Articles of Agreement stipulated that each member should set the parity of its currency in relation to gold, or to the dollar rate on July 1, 1944, Lebanon informed the IMF Managing Director in 1947 that its national currency, the Lebanese pound, was pegged to the French franc by virtue of the 1937 Agreement, which grants the Bank of Syria and Lebanon the concession to issue the Lebanese pound. Thus, the parity of the Lebanese pound was to be expressed in gold, taken as a common denominator, or in US dollar based on its rate of July 1, 1944. In accordance with the agreements of January 25, 1944, the Lebanese
pound was equivalent to FF 54.35, whereas the franc parity declared to the IMF was 7.46113
mg of gold and FF 119.10669 for one dollar. Thus, the parity of the Lebanese pound was set
in gold at: and in dollar at: By virtue of Decree N° 9581/K of August 1, 1947, the Bank of Syria and Lebanon was designated as the depository of the IMF assets in Lebanese pound, in accordance with the provisions of Article XII, Section 2(a) of the IMF Articles of Agreement. As a result of the IMF membership of Lebanon, Decree N° 15105/K of May 27, 1949, included provisions on the currency coverage in gold, and in foreign currencies at market rates different from the official rates. This decree stipulated:
Lebanese-French Monetary Agreement of January 24,
1948 On January 24, 1948, the Lebanese and French governments signed a monetary agreement to which Syria refused to participate. Under this agreement, the official rate of the Lebanese pound was the rate declared to the IMF. Then, due to the Syrian opposition to the Agreement and to the severance of the customs union between both countries, the Lebanese pound became independent from the Syrian pound. In a next step, Lebanon created the Foreign Exchange Office, a control body attached to the Ministry of Finance. Controlling exchange operations was limited to some hard foreign currencies, with free exchange for other currencies, but these restrictions were gradually removed by the Government. With this Agreement the coverage of the Lebanese currency in French franc came to an end. The balances in franc owed to Lebanon were of two kinds:
The Monetary Law of May 24, 1949 A new law was needed to define the new status of the Lebanese pound and to sanction its autonomy in the context of the above French-Lebanese Agreement and the IMF Articles of Agreement. In consequence, the Monetary Law was promulgated on May 24, 1949.
In order to enhance the value of the pound and to encourage capital
inflows to Lebanon, the currency-issuing body (Bank of Syria and Lebanon) continued to
increase its gold assets, so that the coverage rate in gold reached 92.2% in December
1961.
The Code of Money and Credit
Similarly, by virtue of the same law, the gold and foreign-currency assets included in the balance sheet of the Banque du Liban had to be revalued on the basis of the new provisional legal rate, and the resulting differences were subject to the provisions of Article 115 of the Code of Money and Credit. As for hard currencies included in the State revenues, they were to be computed on the basis of the new provisional legal rate, and the State external expenses continued to be transferred at the free market rate. At present, the coverage of the Lebanese pound is secured with gold (9,222,000 ounces) and dollar reserves. This is due to the fact that economic activity is mainly carried out in dollar, with a very high dollarization rate of bank deposits. On the other hand, it is worth noting that a partial pegging of the Lebanese pound to the euro might be considered in the near future, depending on the development of economic and commercial activities of the country.
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