Breaking taboo, Lebanese minister suggests selling off portion of gold reserves

Lebanon's Industry Minister Joe Issa El-Khoury has proposed to sell off $15 billion of the central bank's much-vaunted gold reserves to finance a stronger form of restitution of depositors' savings frozen in the collapsing banking system since 2019, via the purchase of international bonds.

This comes amid divisions over the country's proposed Financial Gap Law, which has been criticized by almost everyone in Lebanon and the International Monetary Fund in its present form.

El-Khoury argued his plan would be better than the government's Financial Gap Law, which would see the central bank repay depositors slowly over 20 years, with no guarantee the money will materialise. and saddling the bank with long-term liabilities.

Under the proposed law, so-called small depositors with more than $100,000 would receive the first $100,000 in cash over 4-15 years, with the remainder paid via long-term tradable central bank certificates or bonds and asset-backed securities.

But El-Khoury's alternative, selling gold to buy bonds from trusted institutions such as European governments, would give depositors their money back with greater certainty, he suggested.

There has been no reaction from the Lebanese cabinet, to clarify whether the minister was speaking in his personal capacity. 

El-Khoury's proposal also directly contradicts Lebanon's Minister of Economy and Trade, Amer Bisat, who told Bloomberg TV on 6 January that Lebanon was "fairly asset-rich" and would not need to sell any gold reserves, which provide crucial confidence to investors.

The country's gold reserves are considered sacrosanct in Lebanon, ringfenced by Law 42/1986, which bans the central bank from disposing of gold without parliamentary approval. Many in the country see it as a guarantee for future generations against the whims of a corrupt political class.

Critics warn that unlocking them would squander Lebanon's last major financial asset while shifting the costs of the crisis onto society rather than holding banks accountable for the 2019 collapse. 

It could also open a path to international creditors to demand it be used to pay back Lebanon's foreign debts instead.

However, in his two-part statement on X, El-Khoury said Lebanon's $47 billion in gold reserves, the 19th largest in the world, technically belong to the independent central bank, Banque Du Liban (BdL), not the Lebanese state, warning against conflating the holdings and assets of the two.

The Lebanese government has estimated losses from the 2019 banking system collapse and financial crisis at around $70 billion, though independent analysts believe the figure now exceeds $100 billion. Millions of Lebanese are still unable to access their life savings.

Gold has hit record prices in recent weeks on the back of global economic uncertainty, jumping above 5,000 USD an ounce.

Lebanon has suffered from a triple financial crisis leading to the meltdown of its banking system, the collapse of its national currency by over 90 percent in value against the dollar, and a sovereign debt crisis since a 2019 bank run. Hundreds of thousands of Lebanese have since been locked out of their deposits.