Lebanese turn to Bitcoin while stuck in a financial crisis

Lebanese turn to Bitcoin while stuck in a financial crisis

Cryptocurrency users who pay attention to the latest news are well aware of the economic situation in Venezuela and how it has prompted greater adoption of Bitcoin - among those still living in the country and their expat relatives living abroad. Now we have a similar situation brewing in Lebanon. Stuck in their own financial crisis, Lebanese consumers and business owners are turning to Bitcoin to keep themselves afloat.

There is no way to know what the eventual outcome in Lebanon will be. While it all plays out though, the rest of the world can learn some important lessons by observing how a necessity creates opportunity. What is happening right now in Lebanon demonstrates exactly why so many people would rather trust Bitcoin than their own country's fiat.

The situation on the ground

Lebanon's economy is suffering right now due to a number of factors. The current situation on the ground has forced banks to limit access to U.S. dollars among both consumers and business owners. Coindesk reports that the Association of Banks in Lebanon has set a weekly $1,000 limit on dollar withdrawals at all commercial banks. Meanwhile, some retail banks have set limits as low as $150 per month.

This matters because Lebanon's fiat, the lira, isn't worth much. Years of economic problems have done to the lira what similar problems in Venezuela have done to the bolivar. People do not want lira because it is unstable and of little value. So instead, they convert the little fiat they have into U.S. dollars.

Meanwhile, business owners need U.S. dollars to purchase imported goods. The thing to understand about Lebanon is that it is one of the world's largest importers. On the other hand, the country exports very little. Thus, they need to have access to currency that the rest of the world will accept. The lira is not it. They need U.S. dollars to keep their businesses running because that is what their creditors expect from them.

The majority of local merchants will not accept lira from their own customers either. This means consumers must have access to U.S. dollars to buy even basic necessities. Limiting how much they can withdraw from their bank accounts every month only makes providing basic necessities more difficult.

The root of Lebanon's problem

We will get to how cryptocurrency is helping Lebanese consumers and business owners in just a minute. First though, a brief history of the root of Lebanon's economic problems will make it easier to understand the Bitcoin phenomenon. Just like in Venezuela, Lebanon's problems are the result of widespread government corruption and mismanagement.

According to a recent Reuters report, Lebanon's GDP growth was averaging between 8 and 9% as late as a decade ago. Things have changed drastically. Growth has been stuck at 2% or lower for the last couple of years. So what caused it?

Lebanon was engaged in a terrible civil war between 1975 and 1990. The result of that war was an entirely new government that was largely sectarian. This new government attempted to address the economic problems caused by the war by artificially manipulating markets. That manipulation led to inflation as well as mounting government debt. As is always the case, the combination had a negative impact on the country's fiat.

Adding to the economic mismanagement was widespread corruption within the Lebanese government. Corruption led to a bloated bureaucracy stacked with political appointees, all the while the nation was suffering from crumbling infrastructure and the emergence of a new black market for basic goods.

Taking matters into their own hands

As is often the case, Lebanese citizens decided to start taking matters into their own hands. One can only take so much hunger before deciding something has to be done. That is where U.S. dollars come in. Lebanese consumers figured out that U.S. dollars had value both domestically and abroad. So they started acquiring them.

Those still living in Lebanon converted their income to U.S. dollars as quickly as they could. Expats sending money home would do so with U.S. dollars. And of course, merchants were more than happy to accept dollars as payment. Everything was moving along just fine until the banks started limiting U.S. dollar withdrawals.

The limits were put in place because of the weakness of lira relative to the dollar. The stronger the dollar becomes the weaker lira becomes. The disparity has now grown to a point where banks believe they have to limit U.S. dollars in the country in order to protect lira from collapsing completely.

Enter Bitcoin

Now we finally get to the discussion of Bitcoin. Consumers and business owners having trouble accessing U.S. dollars are not content to stand pat and watch their personal economics end up in the toilet. So they are looking for a way around the government's most recent restrictions. Guess what they have discovered? Bitcoin can make up the difference that banks have taken away by limiting dollar withdrawals.

Just like consumers have been converting lira to U.S. dollars for years, they can convert some of their dollars to Bitcoin without actually making a withdrawal. This arrangement gives them access to as much BTC as they can afford to buy. They can then use that BTC to buy from merchants willing to accept it.

Even if there is a scarcity of such merchants in a given area, there are other ways to leverage Bitcoin. According to Coindesk, one possible solution is to take BTC to a private trader with the resources to convert it to dollars. Many of these traders have sources both domestically and abroad, so they have no trouble coming up with the dollars they need to keep customers happy. They charge a small premium - in Bitcoin - for their services.

Bitcoin remittances are helping

Bitcoin is also helping Lebanese consumers by way of remittances. Just like in Venezuela, expats sending money home do not want to send U.S. dollars because such remittances have to go through the banking system. That is too risky. So instead, they are sending BTC through a trading platform. Family members receiving the BTC can either spend it or have it converted as described earlier.

Unlike in Venezuela, there doesn't appear to be a big problem with Bitcoin scammers in Lebanon at this point. That may change in the future, but for now, consumers exchanging their Bitcoin remittances for U.S. dollars appear to be getting fair treatment.

Doing what it is designed to do

When you step back and look at the Lebanese problem from outside the political spectrum, you come to realize that Bitcoin is doing exactly what it was designed to do. Bitcoin was created more than a decade ago as an alternative monetary system that would return the power of personal economics to the people. It was designed to level the playing field between consumers and central banks.

Even though Bitcoin has become more of a store of value than anything else, it still performs its core function when called on to do so. Lebanon and Venezuela are both proof of that. Lebanese businesses are staying afloat because of Bitcoin. Consumers are gaining access to U.S. dollars and paying their bills by converting BTC.

Bitcoin does the job because it is decentralized. It is not controlled by any government or central bank. As such, it cannot be manipulated for government purposes. Lebanese regulators cannot limit the supply of BTC in order to prevent it from harming the country's fiat. They cannot prevent private Bitcoin transactions because they have no way to take control of the blockchain.

Getting government out of the money game

Bitcoin payments and remittances aside, there is a way for Lebanon to get out of its financial problems. That way is for the government to get out of the money game. Though it is not likely to happen, it would work. Bitcoin has proven as much.

Nearly every economic crisis over the last hundred years is a direct result of government manipulation. Do you remember the financial crisis that started in the U.S. in 2007-08? The root of that crisis was a U.S. government that manipulated the mortgage market in order to help people who couldn't afford to buy a home do so anyway. Their manipulation created a housing bubble that eventually burst. And when that happened, it initiated a domino effect that led to the worldwide crisis.

What many people do not understand is that governments and their central bank partners use economics as a means of control. If they want more people buying houses, they manipulate the mortgage market. If they want to bring down consumer prices, they engage in quantitative easing to devalue the cost of goods and services.

Bitcoin works as a monetary system because it circumvents all that nonsense. Bitcoin has value because users agree to that value, not because government regulators have decided what value it should have. Bitcoin will continue to have value as long as that agreement exists.

The bolivar and lira may collapse completely in their respective countries, but Bitcoin will likely live on. Thank goodness for that. Bitcoin is keeping millions of consumers in those countries afloat.

Byline: This article was published by Henry.
About: I'm a bitcoin advocate and admin of Coinbet.com.