Lebanon’s Economic Rebirth Through Bitcoin

According to the World Bank, the situation in Lebanon is regarded as one of the “most severe global crises since the mid-nineteenth century.” This has arisen from three decades of imprudent fiscal and monetary policies, leading to the currency’s decline by over 95 percent of its value before this downturn.

The currency is in a state of collapse, corruption is widespread, and the banking sector is in turmoil. Samar Hawa of Rebirth Beirut has seen how these challenges have pushed the Lebanese people into difficulty.

Reflecting on the nation’s resilience, Samar notes, “The Lebanese, like a Phoenix, rise from the ashes. It’s beautiful but sad.” This sentiment resonates with the mission of Rebirth Beirut, an initiative committed to supporting Lebanon in its time of economic crisis and societal rebuilding.

The Lebanese Pound, also known as the Lebanese Lira, has undergone an devastating depreciation, leaving citizens like Samar contending with the erosion of their life savings. As of October 17, 2019, even USD deposits were not spared and transformed into what locals have termed ‘Lollars,’ a phrase coined by a Lebanese economist. This meant that in practical terms, having $100 in the bank equated to being able to use it as only $10, highlighting the stark devaluation and financial reality facing the country.

This situation not only underscores the crippling financial crisis but also serves as a glaring example of third-party risk, as banks faced insolvency after a bank run. It exposes the hazards associated with centralized policymaking that may not always align with the best interests of the people. Despite four years of chaos, Lebanon still lacks a capital control law and effective crisis management measures.

In contrast, bitcoin offers a clear alternative with its core principles of self-custody, empowering individuals to access their funds without the need for external permission. Its transparency mitigates the risk of arbitrary policies that could devalue currency, and its immutable and reliable consensus mechanism ensures a decentralized and secure financial system, eliminating the vulnerabilities of a single point of failure and significantly reducing the likelihood of fraud.

The Lebanese economy, often swayed by political shifts, faced a shock in 2019. The government’s proposal to hike taxes on essential services sparked nationwide protests. In response, the banks shut, trapping people’s funds and leaving many, except for the few very influential people, mainly the bank owners and the “Tier 1” politicians, unable to access their savings. This event led to a significant devaluation of bank deposits, with people’s savings losing a considerable portion of their value overnight, plunging the economy towards collapse. The Lebanese Pound, which was at 1,500 LBP per dollar in October 2019, had devalued to 141,000 LBP per dollar in March 2023 and stands at around 89,000 LBP per dollar today, witnessing an overall devaluation of approximately 98.5%.

For the first time in Lebanon’s history, the country defaulted on its debt in March 2020. This was followed by the devastating explosion in Beirut on August 4, 2020, which further plunged the country into social and economic distress.

Lebanon’s public sector, riddled with corruption, has been unable to provide even the most basic services, including proper healthcare, retirement plans, 24-hour electricity, drinkable water – people install large water containers to stock water for times when it is not provided by the government – maintenance of infrastructure, proper waste disposal, and more.

Yet, in this darkness, bitcoin offers an interesting use case. Georges Haddad, previously working in Investment Management in Canada, returned to Lebanon following the financial collapse to help rebuild his country and started VaultKi, a seed phrase storage solution company that highlights the benefits of self-custody. He sees bitcoin as a solution, “The moment you start understanding bitcoin, you see how broken money is. It’s broken everywhere,” he states. “Lebanon, with its deep economic scars, is a testament to the fragility of fiat currencies.”

Many Lebanese remain unbanked or have faced forced de-banking due to the financial crisis. Bitcoin
BTC
also addresses the challenge of hoarding cash at home. Those with surplus income and savings have lost trust in the banking system and often need help opening foreign bank accounts due to international regulations.

Bitcoin is a hedge against rampant inflation, which has plagued Lebanon in recent years with staggering estimates. It provides a means to circumvent illicit capital controls and restrictions imposed by the banking sector. In this context, stablecoins are used as an interim measure, offering easy access to dollar, serving as a stepping stone amid the crisis.

Rebirth Beirut, an initiative born from the rubble, have recently started receiving bitcoin donations to help fund their initiatives. These donations help fund projects such as installing cables from private generators to light up the streets.

Georges draws parallels between Lebanon’s collapse and the potential downfall of larger economies globally, albeit at a slower pace. “Lebanon could only be five to ten years ahead. It can happen in a blink of an eye,” he warns.

In the past, Lebanon’s banking sector was considered a pillar of economic stability, the “Switzerland of the Middle East.” But years of mismanagement and corruption have eroded that trust.

This crisis, while unique in its specifics, is symptomatic of a global issue with fiat currencies. Bitcoin, with its finite supply and decentralized nature, offers an alternative. Georges envisions a future where bitcoin doesn’t just operate as a currency but as a wake-up call to the perils of unchecked money printing and centralization.

Georges believes Lebanese expatriates will play an important role due to them being responsible for a large portion of the nation’s remittance inflows. With $6 billion a year sent home, bitcoin’s low fees and fast transaction times present an attractive alternative to traditional banking.

Lebanon’s case is ripe for bitcoin adoption, driven by expatriates and a general distrust of centralized authorities. The country’s rich and largely unexploited energy resources – sun, wind, hydro, and potentially gas – offer fertile ground for bitcoin mining. This industry could bring much-needed stability, wealth, and potentially contribute to the decades-long electricity problem.

Samar and Georges share a cautious optimism for their homeland. The path forward is fraught with challenges, but the promise of bitcoin and the spirit of the Lebanese people hold the key to a rebirth. “I am hopeful as a person.” says Samar, “While the road ahead presents challenges, I am encouraged by the efforts of NGOs and the private sector which not only contribute to the restoration of infrastructure but also revive hope. This foundation of resilience and innovation instills optimism in me regarding the future.”

In Lebanon’s struggle, bitcoin is more than a financial asset; it’s a symbol of change, a testament to the power of innovation, and perhaps the country’s first step towards a future where the currency is as resilient as its people.