Desperate Lebanese citizens turn to cryptocurrency as a lifeline following years of fiscal mismanagement in the region once known as the ‘Paris of the Middle East.’
As triple-digit inflation continues, citizens have begun using Bitcoin, cryptocurrency mining, and Tether to pay for goods and services.
The devaluation of the Lebanese currency
After the central bank failed to keep the Lebanese pound pegged to the U.S. dollar in 2019, citizens have seen their savings devalue at an alarming rate. This devaluation worsened during the pandemic, taking the exchange rate from 1,500 Lebanese pounds to the U.S. dollar to 40,000 Lebanese pounds per dollar at press time.
Furthermore, any money deposited in banks before 2019 is now only worth 10-15% of its original value when clients withdraw. Additionally, banks only pay out the full value of money coming from overseas or money deposited after 2019. Limited access to ATMs and withdrawal limits have compounded the problem.
As a result, some desperate depositors have taken drastic measures to retrieve their money, choosing to ‘rob’ their own bank accounts, dressed in black and touting toy guns at frazzled bank employees. One man, Bassen Hussein, made off with $35,000 after holding up a branch of the Federal Bank of Lebanon.
No need to rob banks with crypto in Lebanon
But some citizens are finding less-violent ways to beat the failed system. According to CNBC, one individual earned $20,000 in Sep. 2022 from running a mining operation powered by hydroelectricity sourced from the Litani River. The miner holds his crypto in custodial wallets on Binance and KuCoin.
Mining is a computationally intensive process whose function is akin to a decentralized clearinghouse. The mining process validates and clears cryptocurrency transactions and is how a proof-of-work cryptocurrency network is secured. Miners are awarded new coins to help secure the network.
One architect turned freelancer swaps Bitcoin in his Trezor wallet, earned through freelance work, into USDT. He then takes the USDT to a Telegram group, exchanging it for U.S. dollars to buy groceries.
Some over-the-counter traders swap select cryptocurrencies for fiat, while other citizens can use one of six Bitcoin ATMs. Five ATMs are in the capital Beirut, and one is in Amchit, a seaside town 40 km north of Beirut.
Bitcoin seen as alternative to “failed monetary system”
While some Lebanese citizens worry about Bitcoin’s volatility, others are indifferent. They have invested in Bitcoin because they see it as an answer to a failed monetary system. In Aug. 2022, the World Bank condemned Lebanese authorities for operating a Ponzi scheme. In 2016, the central bank began offering astronomical returns on U.S. dollar deposits that could only be paid using money deposited by others.
“There are many sins and many sinners,” said economist Roy Badaro.
The extent of fiscal mismanagement and the social decline has prompted crypto believers to invest in the volatile asset class, which, in their estimation, is a solution to a corrupt system that shows little sign of abating.
“Bitcoin offers a system that is uncorruptible; a system that is basically permissionless and censorship-resistant,” said a former Pfizer employee who holds 70% of his personal funds in Bitcoin.
According to TradingEconomics, inflation increased to 162.47% in Sep. 2022, up slightly from 161.89% in Aug. 2022.