Should the Lebanese Economy Be Fully Dollarized? Lessons from Panama and Liberia

Document Type : Research Paper


Department of Business Administration, Beirut Arab University, Beirut, Lebanon


In this paper, we shed the light on the dollarization effect on the Lebanese economy and explained its high impact on the current economic and financial crisis. In addition to further explanation and analysis about adopting a full dollarized regime, and evaluation of the predictions of the suggested regime by examining the risks and benefits of full dollarization, and how it is implemented, and discovering the effects of macroeconomics factors specific for each country. The main conclusions drawn from Panama and Liberia are that on one hand, dollarization does not guarantee fiscal discipline, Seignorage loss is the predominant result, and dollarization does not guarantee default risk. On the other hand, the dollarized economy showed inflation performance, financial stability, and avoided currency risk. For the Lebanese case, the adoption of a full dollarization regime is an inevitable step to cope with the actual unprecedented severe crisis. Implementation of a hard peg regime guarantees credibility and is used for open markets; it is a long-term strategy.