In 1986, amid civil war, Lebanon’s parliament passed a one-article law to keep the central bank’s gold outside ordinary political use. Crisis was not a reason to reach for the reserve. It was the reason to protect it.
Law 42 prohibits any direct or indirect disposal of Banque du Liban’s gold unless parliament passes a law. The reserve survived war, reconstruction, sovereign default and banking collapse. Forty years later, the law is unchanged, but the debate around it has moved.
Lebanon is a severe case of a broader problem: a legal barrier can remain intact while politics gradually changes what counts as an acceptable exception.
Proposals for selling gold
Garbis Iradian of the Institute of International Finance proposed selling about $14bn of gold to repay small depositors and placing another $16bn abroad to earn income. Industry Minister Joe Issa El-Khoury proposed liquidating about $15bn for bonds benefitting depositors with more than $100,000. In June, officials were reported to be considering a partial sale or income-generating options to support deposit repayment.
On 7 September, Banque du Liban Governor Karim Souaid said he was generally opposed to selling the gold, but that its use should be considered if the central bank faced an obligation it could not meet and urgently needed to pay depositors. Gold, he added, should not finance state projects or pay on behalf of the state or banks.
These proposals were not coordinated. Together, however, they are creating a normalisation loop. A debate that begins with whether the gold should be touched can gradually become a debate over which use is acceptable.
The first proposal must justify bringing the gold into the settlement at all. Later proposals can move directly to the amount, method or beneficiary. If a fifth proposal arrives, the first four will already have made the basic idea familiar.
A second pressure comes from the asset’s rising value. At the end of August, Banque du Liban’s gold was valued at about $41bn, roughly 30% more than a year earlier. Appreciation creates a price paradox: it increases what Lebanon could raise from the gold and what Lebanon would give up by using it. The same price increase that makes selling more attractive also raises the cost of selling.
As use becomes more familiar, the burden of argument can shift. Law 42 makes non-use the starting point. At first, proponents must explain why the gold should be used. After enough proposals, opponents are asked why it should not be. The law is unchanged; the burden has shifted.
If one exception is eventually approved, the starting point changes again. It would not repeal Law 42, but the next proposal would no longer ask whether the gold can ever be used. It would ask whether the new purpose is close enough to one parliament has already accepted.
Three tests to determine use
So far, this is a political process. A separate but related risk appears when the gold enters financial planning. Parliament amended the bank-resolution law in August, but the financial-gap law – intended to determine the scale of the losses, how they will be distributed and the mechanisms for deposit recovery – remains unresolved. Souaid said on 7 September that he does not expect it to be enacted for another six to eight months.
That sequence matters. Gold is already being discussed as a possible source for depositor payments if the central bank faces an obligation it cannot meet, while the framework that will determine losses and their allocation remains unsettled. Financial dependence can begin before legal approval.
The normalisation loop therefore has two stages. Repeated proposals make use easier to consider. A plan built around future access can make use harder to refuse.
Keeping the gold untouched is not costless. In a severe crisis, leaving a large asset unused can force harder choices elsewhere. But those costs do not answer whether a protected national asset should be used to reduce them.
The non-use test comes first. It asks what makes the case exceptional enough to justify departing from a rule enacted during crisis to protect the gold. The exceptional-purpose test comes next. It asks whether the proposed use serves a public purpose important enough to justify using a national reserve. Only after those questions are answered should officials debate how the gold might be used.
Even then, a protected-asset stress test would add one safeguard if gold enters a formal recovery plan. Would the plan survive a sharp fall in the gold price? More important, would it survive if parliament refused to authorise its use? The first tests value. The second tests legal availability. If the answer to the second question is no, the plan already depends on permission that parliament has not given.
European parallels
There is a useful contrast in Europe. Around €210bn in Russian central-bank assets remain immobilised in the European Union. The EU has kept the principal immobilised while establishing rules for the extraordinary revenues generated by those assets, which can be used to support Ukraine. Europe determined the legal treatment first and the use of the revenues second. Lebanon risks doing the reverse.
In Lebanon, the institutional setting raises the stakes further. Any exception would be decided by a parliament that postponed the scheduled election and extended its own mandate by two years. Its legal authority remains. But a decision that cannot easily be reversed requires a particularly clear public justification when the election due in May was postponed.
Lebanon is an extreme case, but not a unique one. Wherever governments place public wealth behind legal barriers, the same gap can emerge between legal protection and political practice. Repeated proposals can make an exceptional use seem normal before the law itself has changed.
Lebanon’s experience points to a simple rule: decide whether an exception is justified before debating how to execute it. Otherwise, a protected asset can become politically available long before it becomes legally available.
Mustafa Dah is Associate Professor of Finance and Chairperson, Department of Finance and Accounting, Lebanese American University.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.