February 7

Lebanon Devalues Currency by 90%

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Gold rightfully earned the moniker “crisis commodity.” For many millennia, it has proven itself time and time again as a store of value, a respected medium of exchange, and a hedge against economic crises. It is a tangible asset with limited supply and persistent demand that often increases in value during economic turmoil. 

People often flock to gold as a safe-haven asset to help protect their wealth and purchasing power because it will never go bankrupt. On the other hand, bonds can always default, and paper currencies can turn worthless. None of these financial vehicles have intrinsic, tangible value like gold.

All you have to do is look at Lebanon in 2023 as a cautionary tale of what can happen when you put too much faith in central banks, governments, and paper currencies.  

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Lebanon’s Economic Meltdown 

Lebanon was once a regional hub for finance, culture, and tourism. Its rich history, diverse society, and cosmopolitan capital city of Beirut were a beacon of light in the Middle East. However, its 15-year civil war between 1975 to 1990 essentially ruined the country. Its economy and infrastructure have yet to recover fully. As a sobering reminder, you can still see bullet holes at the Beirut Holiday Inn from it.

Beirut Holiday Inn

Holiday Inn Beirut

Lebanon is no longer prosperous and continues confronting decades of political instability, religious infighting, rampant corruption, reckless spending, and financial mismanagement. 

By 2019, it became unbearable for the economy.

A September 2021 report from the UN reported that almost 75% of its citizens live in poverty. Lebanon's December 2022 inflation rate was also an astounding 122%.  

In 2023, things reached a breaking point for the Lebanese pound.

On February 1, 2023, Lebanon adopted a new official exchange rate of 15,000 pounds per U.S. dollar. Before this, the Lebanese pound to U.S. dollar's 1,507-to-1 exchange rate already lost about 97%. This new exchange rate marks a further 90% devaluation and remains considerably off the parallel market- roughly 57,000 per dollar.

In simple language, the Lebanese pound is practically worthless now. 

Related: Why Doom and Gloom Out of Davos Makes a Bull Case for Gold

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Lebanon’s Not the Only Developed Nation To See Its Economy Evaporate

Throughout the years, other developed countries saw similar falls as Lebanon and continue to deal with the fallout today.

Greece

Excessive government spending, low tax revenue, and widespread tax evasion caused Greece's debt crisis from late 2009 until 2018. With the Greek government unable to pay its bills, the European Union (EU) and the International Monetary Fund (IMF) unprecedentedly had to bail it out. 

Today, its economy still faces challenges. Public debt remains high, at around 180% of its GDP. Its economy continues growing at a snail's pace and needs help attracting foreign investments. Unemployment remains high, particularly among younger workers, contributing to poverty and social unrest.

Living standards have also deteriorated due to public spending cuts, pension system reforms, and declining real wages.

Argentina

Argentina is a G20 nation. Yet since 2001, it’s defaulted on its debt three times. Today, it’s plagued by 95% inflation, currency devaluation, and dwindling purchasing power and savings accounts.

Today Argentinian citizens have seen their purchasing power erode and the value of their savings reduced to rubble. The Argentine peso has lost considerable value in recent years, making imports more expensive and reducing the competitiveness of the country's exports. As recently as 2021, the Argentine peso was the world's second most devalued currency against the USD- behind the Turkish lira.  

Related: Trade-Deficit Report, Unemployment, and Consumer Confidence

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Turkey

Turkey is also a G20 nation. Yet the Turkish lira has experienced significant depreciation in recent years, leading to increased inflation and decreased purchasing power for Turks. As of January 2023, Turkey’s inflation rate stood at 57.68% and marked a disturbing 6.65% month-over-month increase.  

Things only appear to be worsening following the recent earthquakes, as the lira slumped to a record low.

Despite these facts, the Turkish central bank stubbornly refuses to raise interest rates. As recently as February 3, 2023, it said it would keep interest rates low after its May elections, scoffing at comments from banks like JPMorgan and Goldman Sachs.

These big banks warned about Turkey's unconventional monetary policy resulting in the country having to seek external funds to finance its growing current-account deficit.

The Key Takeaway: This Could One Day Happen in America 

Before saying, “this could never happen in America,” consider the facts. The U.S. is not invincible and walks on a dangerous financial tightrope. 

The U.S. government again must raise its debt ceiling to avoid defaulting on its debt for the first time. Currently, it sits at an alarming $31.4 trillion. Failure to raise the ceiling again would risk “economic and financial catastrophe,” according to Treasury Secretary Janet Yellen. 

However, continuing to pay off debt with more debt is unsustainable.  

Eventually, it could result in a lower standard of living, a cut in many government services like in Greece, reduced investor confidence, and the decline of the U.S. dollar as our currency and the world’s reserve currency. 

Economist, author, and former government consultant Jim Rickards warned about this for over a decade. Yet today, he says we could face the third currency upheaval of the last century. 

It happened in 1934 when Franklin Roosevelt confiscated private gold, and again in 1971 when Nixon abandoned the gold standard to “fight inflation”.

Following the signing of Executive Order 14067 in March 2022, we could face the third.

According to Rickards, the fine print in Executive Order 14067 discusses the eventual replacement of the U.S. dollar with a digital dollar. 

Citigroup, HSBC, Mastercard, and Wells Fargo already teamed with the New York Fed to oversee a 12-week digital dollar pilot, so we may not be that far off.

If and when the U.S. dollar eventually turns to dust like so many other currencies, gold has 5000+ years of evidence explaining why it will likely continue to protect generational wealth and purchasing power. Click here to request your free wealth protection kit today. 

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About the author 

Robert Samuels

Robert Samuels is a financial copywriter and business advisor. After teaching himself stock market basics and financial fundamentals, he leveraged this newfound passion into a Master’s Degree from Harvard University’s ALM Finance extension program, where he received a 3.87 GPA and Dean’s List distinction.

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