This research examines foreign exchange rate policy and its application in Lebanon. Three issues provide the focus for this research. The first issue involves an historical overview of the policy and process of setting the value of the Lebanon pound in foreign exchange markets, to include a consideration of which officials and institutions exercise responsibility for the exchange rate. The second issue concerns the current exchange rate policy followed by Lebanon, together with a consideration of the outcomes of this policy on the country’s economic performance. The third issue is the comparability of Lebanon’s exchange rate policy with those of Egypt and Israel.

Historical Overview of the Policy and Process of Setting the Foreign Exchange Value of the Lebanon Pound, Including Which Officials and Institutions Exercise Responsibility for the Exchange Rate

Lebanon was an important international financial center through 1975, when a civil war involving the displaced Palestinians erupted; Israel began its decades long attacks on the country; and the country slipped quickly into economic and political ruin. Since 1975, the Lebanese economy has seldom had a chance to function efficiently and monetary stability frequently has proved to be elusive.

Through 1964, the Bank of Syria and Lebanon, a French private bank, acted as the central bank for Lebanon. The bank issued the Lebanese currency and held the government’s financial accounts. When the bank’s charter expired in 1964, the Lebanon Central Bank was established, and was given the responsibility for developing and implementing monetary and currency exchange rate policy for the Lebanese pound, for the issuance of currency, for holding government financial accounts, and for regulating commercial banks operating in the country (Roberts, 1996).

The Lebanese Central Bank was successful in maintaining stability for the Lebanese pound in currency exchange markets through 1984, …

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