Are cryptocurrencies regulated in Lebanon?
The Central Bank issued the region’s first official warning against the trading of digital currencies by financial and exchange institutions in 2013. Financial sector announcement No. 900 on risks related to electronic money refers to Article 3 of Decision No. 7548 of 30/03/2000 on Financial and Banking Operations by Electronic Means that prohibits the issuance of electronic money (النقود الالكترونية) and its use by anyone and in any way. Warning No. 900 warns of risks associated to virtual money (النقود الافتراضية) and Bitcoin in particular, including the platforms and networks used for their issuance or circulation. It reminds that “this form of money is not issued or guaranteed by any central bank”, and “facilitates criminal activities to launder money and finance terrorism”. As a result, “the Banque du Liban warns anyone against buying, possessing and using such money”. This announcement has no enforceable or binding legal value, and the Decision No. 7548 of 2000 does not refer to virtual money (a digital representation of a value issued by its developers and accepted among a virtual community, outside a regulatory purview), but to electronic money (an electronic storage of fiat currency).
Central Bank Governor Riad Salameh later stated during the 7th CSR Lebanon Forum of October 2017 that Bitcoin is neither an asset nor a currency, probably a kind of commodity. He reiterated this association of virtual currencies like Bitcoin to a commodity (سلعة) in November 2018, during the fourth “Electronic Crime Prevention Forum”.
In October 2018, the Parliament adopted Law No. 81/2018 on e-transactions and personal data. Article 61 of the law makes the first official mention of “electronic and digital money” (النقــــود الإلكترونيــــة والرقميــــة) in a jurisdictional text. However, the text does not distinguish between electronic (الإلكترونيـة) and digital (الرقميـة) money in its definition of the two as “electronic money units that can be stored on an electronic support”. Once again, the law does not encompass virtual money such as Bitcoin. Digital money is described as part of electronic money. With this text, the Parliament gives the BDL full responsibility on the enactment of a regulatory framework for these currencies.
The only way for a country to allow its citizens to buy and sell cryptocurrencies in a safe way is to implement a strong legal framework clearly telling banks that payments can be made to buy cryptocurrencies within strict anti-money-laundering and know-your-customer procedures. Such regulations, similar to those implemented in France, Switzerland, the UAE or Germany, are the result of at least a year of parliamentary work, industry and experts consultations, in countries where there is already a significant use of virtual assets in the private sector and population. It cannot be expected that the Central Bank modifies its stance to adopt a regulatory framework for virtual currencies anytime soon, as the country’s economy and financial system are highly unstable and vulnerable to any shocks and the population is generally unaware of such technologies.
What does the lack of regulation mean?
Due to the lack of regulation and official warnings, cryptocurrency-related activities are de facto forbidden by Lebanese banks. This means that it is not possible to buy virtual currencies like Bitcoin on virtual asset service providers — be they exchange platforms, OTC brokers, custodians or wallet providers, etc. — using a Lebanese bank account or credit card. The transaction will be blocked by the bank’s compliance department systems. Bahraini exchange Rain used to accept Lebanese customers, but banned them in 2019 following a Central Bank decision.
However, people are not forbidden to buy, sell, trade or spend virtual money with each other. Businesses are not even forbidden to accept payments in virtual currencies. There already are a few businesses that openly accept Bitcoin as a payment method, such as a parking in Hamra, the Choueh law firm, Rkein Motors or Choga Chocolatier. In these cases, the payment is made by sending funds from the buyer’s Bitcoin address to the seller’s Bitcoin address, using a mobile app wallet or computer.
It is possible to find over-the-counter buyers and sellers of Bitcoin or other virtual currencies in Lebanon via peer-to-peer platforms such as LocalBitcoins, which is registered in Finland, or WhatsApp groups for instance. In most cases, trades are possible in small quantities and at a dissuasive rate. The trade can take place in person with the buyer paying with any form of payment and the seller sending the virtual currency to the buyer’s address on a foreign platform or a physical cryptocurrency wallet for instance. The main difficulty for the buyer is to create an account on a fiat-to-cryptocurrency platform or wallet provider. In the case described above, the cryptocurrency can be sent to a cryptocurrency-to-cryptocurrency platform. Some of them can be accessed from Lebanon or even do not require any ID. Later on, if the buyer wants to sell their cryptocurrencies, they will follow the same procedure.
With the strict capital controls exerted by Lebanese banks on their customers since October 2019, Aljazeera reported that people were buying Bitcoin en-masse to transfer funds abroad. However, such a process seems to have been largely exaggerated, since there are no efficient ways to buy cryptocurrencies in the country. Bitcoin is indeed sold at a premium in Lebanon compared to global prices, and at the Lebanese pound black market rate, due in part to the scarcity of cryptocurrencies in the country, but also to the fact that both sellers and buyers are struggling to access and transfer dollars or convert Lebanese pounds.
Can someone open an exchange platform? What rules apply? Is the lack of regulation an obstacle? How?
As explained earlier, there are at least two kinds of exchange platforms: cryptocurrency-to-fiat and cryptocurrency-to-cryptocurrency platforms. The latter ones are easy to use in Lebanon, while the former ones, also called “fiat on-ramps” are not available for Lebanese users due to fiat deposits being blocked by Lebanese banks.
In an attempt to promote the adoption of Bitcoin in the Middle-East, David El Achkar partnered in 2014 with Ola Doudin to launch YellowPay in Lebanon and the UAE, providing Bitcoin payment processors for merchants willing to accept Bitcoin payments. The platform had to shut down in early 2016 after failed talks for an acquisition. The market was — and still is — nearly inexistent since there was no fiat on-ramps for Lebanese customers to be able to pay in Bitcoin.
Today, a Lebanese exchange platform would face the same issues as banks would block deposits. It is not directly a regulatory obstacle but one that relies on the banks’ will to comply with the Banque du Liban warnings.
The central bank has been planning the launch of its own centralized cryptocurrency. Are launch plans still underway? Under which rules? For what purpose? How will it affect the adoption of crypto in Lebanon?
Riad Salameh evoked in 2017 and confirmed during the November 2018 forum the project of launching a state-backed digital currency (“عملة رقمية”) which would be the digital version of the Lebanese Lira (an e-Lira or Lebcoin) for exclusive use in Lebanon, issued and controlled by the Central Bank. “Its goal is to ease payment methods, to implement a technological transformation of financial institutions and to lower the costs borne by consumers”. He again dissociated this project from virtual currencies (العملات الافتراضية). Though the BDL’s plans do not seem very advanced, the governor confirmed at the Euromoney Lebanon conference in June 2019 that they were still working on it. He reminded that several central banks around the world are already using blockchain-based central bank digital currencies (CBDC), though it is not yet clear whether the e-Lira would be blockchain-based or not. There is limited engineering expertise of blockchain development in Lebanon and the Central Bank’s partners on the project, if any, have not been disclosed.
In any case, if a CBDC is launched in the future, it will have no impact on adoption of virtual currencies in Lebanon. Its use would be restricted to Lebanon, and hermetically controlled by the Central Bank. It would not be convertible against decentralized cryptocurrencies such as Bitcoin, but only against physical or electronic Lebanese pounds. Lebanese citizens would not be able to use them on cryptocurrency exchanges.
Could Lebanon benefit from embracing crypto? If yes, how? (Requires integrating crypto payment processing platforms with retailers to accept cryptos- protect against inflation – facilitates cheaper remittances…). If not, why?
That being said, from a social perspective, and if a legal framework allows people to buy cryptocurrencies at a fair rate, such a medium of exchange would highly benefit a population that is widely unbanked, has no access to digital and international payments and transfers, and fears a devaluation of the local Lebanese pound or a haircut.
Cryptocurrencies such as Bitcoin have often been criticized for their volatility, however in eight months, since October 2019, the Lebanese Lira has lost nearly 60% of its value while the Bitcoin price against the dollar has risen by 13%. This comparison gives room to various possible feelings, and populations in countries where the national currency has experienced hyperinflation, such as Venezuela, Iran, or Turkey, have sometimes resorted to cryptocurrencies to protect their savings or purchasing power. But in a theoretical economy where the national currency is stable, one may be concerned over the probability that uneducated people invest in a cryptocurrency that can lose part of its value at anytime. To avoid this, there are other cryptocurrencies in the space that provide stability through a peg to a strong fiat currency, a basket of fiat currencies, or even commodities such as gold. So-called ‘stablecoins’ can be exchanged instantly against Bitcoin or other currencies.
Moreover, from a business perspective, would a shop owner accept to be paid in Bitcoin if he knows that the dollar value of the payment received is unstable, and can either rise or drop in a matter of minutes? How can he keep track of his accounts with accuracy when the value of a Bitcoin inflow from a customer on a given day is different from an equivalent Bitcoin outflow to a third-party? This is where Bitcoin payment processors or applications such as US-based BitPay or Austrian Salamantex are useful: such systems allow for the merchant to receive a Bitcoin payment directly in fiat currency on his bank account. The exchange is operated by the payment service provider at the market rate at the time of the transaction. There are systems that can be integrated in an existing fiat payment terminal, others that work as an autonomous Point-of-Sale terminal, and they can be connected to an account with a mobile app and desktop platform. Payments can also be made through an app using a QR code. On the accounting and fiscal side, startups such as the French Cryptio allow businesses to connect all their cryptocurrency and fiat accounts to automate bookkeeping and translate all transactions into usable data.
Finally, some features or cryptocurrencies could make them interesting alternatives for remittances: international Bitcoin transfers take minutes and cost a few cents in fees, while international bank transfers take days or weeks and can cost dozens of dollars in fees. As a result, Lebanese of the diaspora could more efficiently send money back to Lebanon, parents could easily send money to their children that study abroad, and foreign workers in Lebanon could also save a lot while sending money to their families.
In both scenarios though, the same fiat on- and off-ramp issue is still an obstacle. The sender would need to convert dollars or Lebanese pounds against Bitcoin to transfer it abroad, and the receiver of remittances in Lebanon would also need to convert the Bitcoin back to fiat money in order to use it. As for merchants, customers would need to buy cryptocurrency before paying for goods or services with it, and the merchant will want to exchange their cryptocurrencies to pay suppliers that only accept fiat money for instance.
Niche and flexible businesses though can benefit from cryptocurrency if they can be paid by their clients and also pay their suppliers with it, or if they have access to bank accounts based in a crypto-friendly country. The same is true for individuals that have foreign bank accounts.