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Lebanon's Eventual Transition to a Floating Exchange Rate System: Balancing Flexibility with Stability

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  • Roudy Sassine

Abstract

Lebanon's longstanding fixed exchange rate regime collapsed in the wake of the country's 2019 financial crisis. This paper examines the underlying monetary factors that contributed to the collapse, offering a new policy framework based on a floating exchange rate system and detailing its superior qualities. However, the paper cautions against a hasty transition without strengthening economic fundamentals. Instead, it argues that transition should proceed first by adopting a managed float, during which the country can increase its fiscal space to enable increased investment in idle capacity and the productive sectors, balancing flexibility with financial stability. Further economic imperatives must be addressed before a fully floating regime can be adopted. The paper concludes by outlining a roadmap for a smooth transition from the fixed exchange rate to a managed float and finally to a fully floating system.

Suggested Citation

  • Roudy Sassine, 2025. "Lebanon's Eventual Transition to a Floating Exchange Rate System: Balancing Flexibility with Stability," Economics Working Paper Archive wp_1094, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1094
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
    2. Eric Tymoigne & L. Randall Wray, 2013. "Modern Money Theory 101: A Reply to Critics," Economics Working Paper Archive wp_778, Levy Economics Institute.
    3. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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