From the Second World War to the mid-1960s, Lebanon’s monetary and banking structures underwent profound changes that laid the foundations of the modern financial system. This was not a simple process of gradual economic development, but a complex path in which regional politics and domestic economic decisions were deeply intertwined.
In the summer of 1941, after General de Gaulle’s forces removed the Vichy authorities and brought Lebanon and Syria into the sterling area, the Lebanese lira was linked to the pound sterling in an attempt to preserve monetary stability amid the collapse of France’s financial system. Following independence in 1943, the Lebanese state began seeking a more autonomous currency arrangement, removed from French volatility.
By the end of the 1940s, Lebanon had chosen a decisive monetary course. A separate agreement with France in 1948 effectively separated the Lebanese lira from the Syrian lira. Domestic measures included liberalizing the foreign-exchange market, fixing the lira against the dollar and increasing gold coverage, which strengthened confidence in the currency.
This course also produced economic tension with Syria, culminating in a customs break in 1950 and disruption to the circulation of currency between the two countries, particularly during the “forty million lira” crisis and changes to their currency-issuance systems.
Lebanon entered a very different phase during the 1950s. Under President Camille Chamoun’s liberal economic policy, Beirut became a regional financial and commercial center. The transformation was driven by remittances, capital displaced after the Palestinian Nakba, emerging Gulf oil wealth and Lebanon’s relative stability compared with other countries in the region.
The 1956 banking-secrecy law was another pivotal development. It attracted foreign capital and accelerated the sector’s growth, raising the number of banks from 14 to more than 40 within a few years.
Yet rapid growth came without adequate supervision or regulation. The crises of 1956 and 1958 exposed the system’s fragility as banks faced deposit withdrawals and capital flight, forcing the issuing bank to inject substantial liquidity to maintain stability.
After the 1958 crisis, fundamental reform became unavoidable. President Fouad Chehab began rebuilding state institutions, especially in the financial and monetary spheres. He refused to renew the old arrangements with Banque de Syrie et du Liban and insisted on creating an independent central bank with authority over monetary policy.
At the government’s request, expert Joseph Oughourlian drafted the Code of Money and Credit despite objections from the Association of Banks, which feared restrictions on its members’ activity. The law passed on August 1, 1963, establishing the first comprehensive framework for banking regulation and creating Banque du Liban as an autonomous public institution.
The law gave the central bank three main duties: issuing currency, regulating liquidity and credit, and maintaining exchange-rate stability. It also imposed new rules on banks, including higher minimum-capital requirements and a transitional period for compliance.
Philippe Takla was appointed Banque du Liban’s first governor on September 7, 1963, together with his vice-governors, beginning the practical construction of the modern monetary authority. Work also started on the bank’s new Hamra headquarters, designed as the home of a sovereign and technically advanced institution.
By 1964, when the old issuing concession expired, Lebanon had completed a long transition from a fragmented monetary order to a regulated central system. It had laid the foundations of an advanced financial economy, even as structural weaknesses that would emerge later remained within it.
All articles