$2.5 billion in profits
earned on Sayrafa platform

World Bank: Depleting BDL reserves

with short-lived lira appreciations

Sayrafa has generated arbitrage profits of more than $2.5 billion since its launch in 2020 to those who could access the platform and buy foreign currency at subsidized rates, according to the World Bank’s Lebanon Economic Monitor (LEM) for the spring of 2023.

Arbitrage is the simultaneous purchase and sale of the same or similar asset on different platforms in order to profit from differences in listed prices. In the case of Sayrafa, people take advantage of the exchange rate difference between the higher rate on the open market and the lower rate on Sayrafa.

Buy-side participants, who include public servants, importers, and ‘select’ individuals and businesses, have benefited from arbitrage trades between the discounted rate offered on the platform and the parallel market rate. The ‘Normalization of Crisis Is No Road for Stabilization’ LEM said that opaque trading and the complete absence of information have led to perceiving Sayrafa as a ‘black box’.

The arbitrage profits are losses to the balance sheet of the Central Bank (BDL) whose interventions on Sayrafa are depleting its reserves and weakening its balance sheet while only leading to short-lived appreciations of the lira. According to the report, the survival of Sayrafa hinges on BDL’s ability to supply dollars which most likely originate from its own reserves. This is because businesses and individuals trading on the platform have no economic incentives to sell dollars at the Sayrafa rate since they can sell them at a more favorable exchange rate in the parallel market.

“BDL, facing hard currency supply constraints, has mostly relied on dwindling gross foreign exchange reserves to supply dollars through the platform to temporarily prop up the currency. More recently, BDL has taken to using printed local currency to buy US dollars on the parallel market before interventions on the Sayrafa platform, sharpening exchange rate volatility. Whether at the expense of burning through remaining reserves, or further depreciating the currency, such monetary tools have proven ineffective and highly costly,” the World Bank said.

Substantial increases in trading volumes on Sayrafa have been occurring in tandem with precipitous decreases in BDL’s remaining gross usable reserves. Its gross reserves plunged by $4.82 billion from July 2021 to January 2023, which indicates that BDL used its reserves, at least in part, to provide liquidity on the platform, according to LEM.

“Notwithstanding the sizeable volume of transactions on the platform, the goal of unifying exchange rates continues to be elusive due to the rationing and severe shortage in foreign exchange supply on the platform, and the lack of a credible macro-framework. In fact, the platform has added yet another exchange rate to a highly taxing multiple exchange rate system that continues to create distortions and rent-seeking opportunities,” the World Bank said.