Why Bitcoin Should Be The Saving Choice of Lebanon

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Thomas Semaan is a finance and economics enthusiast. He created an Arabic-language podcast about Bitcoin, economics, and Lebanon. Thomas is also a member of the Lebanese, Arab and Bitcoin communities.

Behind the destroyed, unlit roads and the emptiness of its downtown, Beirut has huge skyscrapers that play the role of the headquarters of Lebanon’s local banks. The tale of the Lebanese successful banking reputation dates back to the inception of the Lebanese state in 1943. You can pinpoint the success of this sector to many different aspects, including but not limited to the central bank’s once-strict monetary policy, the acquisition of huge amounts of gold in the 20th century making Lebanon the third-largest holder of gold per capita in the world and number one in the middle east and north of Africa, or the banking secrecy law that imitate the Swiss banking sector which attracted many wealthy individuals and corporations to leverage it. A huge public sector is also hidden beneath the country’s often underdeveloped parts. It appears to be primarily focused on productivity and services but is in fact welfarist in its essence.

Prior to 2020, two types of jobs were considered lucrative for the average Lebanese citizen: working in banking or working in the government. Banking meant you were part of a too big-to-fail sector. Working in the government meant you could earn a higher salary, more than regular benefits, and end-of-service indemnity. You are guaranteed by law that your job will not be terminated. This was possible because of a third contributor to this formula, the financier for the Lebanese bank sector. For the reasons stated above, the Lebanese financial sector was attractive to many investors but only for a short time. One could say from the time of the country’s civil war (lasting from 1975-1990), most of these reasons ceased to be relevant, especially with the world moving away from a gold standard and with banking secrecy no longer being secret, practically. By the early 2000s up until the late 2010s, the investors in the banking sector, known as depositors, were lured by high interest rates, only made possible through banks buying even higher interest-bearing government bonds. In simple terms, the scheme was as follows: The central bank sold high-interest bonds to local banks. Banks were able to compete for high-interest deposits and could afford to sell more. As long as the large amounts were paid on time, the depositors were happy to participate in this scheme. While interest rates around the world were zero or close to zero, the Lebanese depositor was enjoying a whopping 10-15% on their deposits. As you may have noticed, this system was bound for collapse. In late 2019, it had been quasi-settled that depositors will not get their full balances anymore. The government was basically ineffective and unable to pay back banks, so banks were unable to pay their customers. With this impending reality, the central bank started printing money and paying back the depositors accordingly, which caused the infamous hyperinflation in Lebanon. The Lebanese pound lost around 90% of its price against the U.S. dollar. In late 2019, $1 equaled 1,500 Lebanese pounds. At the time of writing, $1 equals 35,000 Lebanese pounds.

Lebanon’s bloated government sector and currency hyperinflation are prime examples of why bitcoin has a use case in the destabilized country.

Lebanon Supply of coins and notes in circulation (M0) went up more than eight times in less than two years. (Source)

Lebanon is characterized by horrible infrastructure: horrible roads, horrible electricity infrastructure, even horrible communication lines and internet. The government controls all of these areas. On top of that, the Lebanese government employs over 300,000 people in the public sector. For a country that has around three to four million adults who are eligible for work, the government is essentially employing around 10% of the entire workforce of the nation. This is a huge number for any country, especially one that claims to be free to follow capitalist and market principles. For a long time Lebanon was considered a Libertarian utopia compared to its neighboring region, while in fact it’s more like a Libertarian’s nightmare.

It is clear that the average Lebanese citizen is not happy with this situation. Depending on your perspective, this economic reality could be seen as either the cause or consequence of the country’s never-ending political tension. Since the 2000s up until this day, the Lebanese voter always strived for political change. Considering the nature of the country’s demography, this led to many sectarian and regional conflicts. The last 20 years in Lebanon saw many protests, political assassinations, shoot outs, war with neighboring countries and emigration. All of it failed because the people tried to change the government by funding it through local banks. Not only was a huge chunk of the country’s capital being funneled into an obvious Ponzi scheme, but this capital was also used for the most inefficient government-controlled economy. It lost its main funding source when the government collapsed and couldn’t pay its obligations. Everything the government used to control has been completely lost. Since the official energy grid in Lebanon has collapsed, individuals are finding alternative sources of energy.

Here’s the catch, the average depositor in Lebanese banks did not have the intention to fund the government. Nearly everyone knew that the government was inefficient, and there is a culture of distrust in government. But, depositors were just lured into high interest rates that seemed to have been working for more than a decade. This scheme is now dead and the Lebanese citizens still need to have an alternative savings method. The short answer is bitcoin.

Even though bitcoin isn’t trying to lure investors in or promise future profits, its track record speaks for itself. My Bitcoiner friend who also happened to be Lebanese, Hass McCook, ran the numbers. With a conservative monetary policy of 21 million coins to ever exist, using this technology as a saving tool is not at all a bad idea; it could be the only good idea. Although Bitcoin allows for peer-to-peer, global settlement, it could also be beneficial to the average Lebanese citizen who has a disabled banking sector. However, investors were manipulated by the lack of saving problems that led to the collapse in the economy.

Money that was deposited in banks was used to fund the government. Comparatively, bitcoin money is used to fund an open-source, truthful and trustless network that allows independent users to be honest. This includes miners, full nodes, regular users, and more. The Lebanese citizen will be able to escape being coerced into funding a corrupt government. In turn, they will directly benefit from funding a system which promotes peace and sovereignty.

This is a guest post by Thomas Semaan. Opinions expressed by the guest blogger are not necessarily those of Bitcoin Magazine or BTC Inc.

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