From the Collapse of the Lira to the Beginnings of Stabilization: Riad Salameh and Banque du Liban Enter a New Era

After the US dollar reached a record high of 2,775 Lebanese pounds in August 1992, Lebanon entered a new financial phase with the formation of Rafic Hariri’s first government at the end of October that year. The political shift was quickly reflected in the market: the dollar fell to around 1,840 Lebanese pounds, while Banque du Liban’s foreign-currency reserves rose to approximately $1.45 billion.

Rafic Hariri also helped calm the market by injecting dollars from his personal funds—an intervention that contributed to curbing speculation and bringing the exchange rate down to lower levels.

The most significant turning point, however, came on August 1, 1993, when Riad Salameh became governor of Banque du Liban. At the time, the Lebanese economy was still emerging from the effects of the war, while the banking sector was suffering from severely weakened assets and capital.

Salameh brought extensive experience in international financial markets and came from outside Lebanon’s traditional political and banking establishment. As a result, the banking sector initially approached him with caution. He faced a fundamental task: restoring confidence in the Lebanese pound and revitalizing the banking sector.

The new governor’s vision aligned with Rafic Hariri’s policy of stabilizing the lira’s exchange rate and supporting the revival of economic activity and investment. Banque du Liban began playing a more active role in the markets, intervening in the foreign-exchange market to maintain currency stability, managing liquidity and interest rates, purchasing Treasury bills, and issuing certificates of deposit.

Banque du Liban also expanded its role to cover the foreign currencies circulating within the economy, providing clearing services for various currencies across the Lebanese banking system.

At the same time, Beirut was gradually rebuilding its post-war image. The reconstruction of the capital’s city centre began, attracting substantial investment through Solidere. Banque du Liban supported this period by establishing Beirut’s secondary financial market and the Open Market Committee.

In September 1994, the first foreign-currency-denominated Treasury bonds were issued to finance the return of displaced people, while the economy recorded growth of approximately 6%.

However, the recovery began to falter in 1995. Political tensions surrounding the extension of President Elias Hrawi’s term placed intense pressure on the lira. Banque du Liban incurred losses of approximately $1.6 billion in the foreign-exchange market, while interest rates on Treasury bills rose to record levels.

During this period, Banque du Liban chose not to continue injecting liquidity or purchasing Treasury bills, fearing that additional financing would fuel further speculation against the lira and threaten exchange-rate stability.

Thus, between 1993 and 1995, Lebanon moved from attempting to rescue its currency following its collapse to rebuilding confidence, stabilizing the exchange rate, and revitalizing the financial sector.

Yet monetary stability did not mean that Lebanon’s fiscal problems had been resolved. As public spending increased and financial obligations accumulated, the country was entering a new phase—one in which public debt and the financing of the state would become the defining issues of the years ahead.

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