Key takeaways
- Lebanese law lets debtors discharge a foreign currency debt by paying in Lebanese pounds, but the exchange rate applied determines whether a creditor recovers real value.
- Courts have ruled inconsistently on which rate governs, and many now reject 'lollar' bank cheques as valid discharge of a dollar obligation.
- The distinction between trapped bank dollars ('lollar') and 'fresh' cash dollars sits at the center of nearly every repayment dispute.
- A well-drafted currency clause specifying fresh USD cash and a clear governing law can protect a creditor before a dispute arises.
A foreign currency debt in Lebanon can, under local law, be settled in Lebanese pounds, which is why so many disputes now turn on a single question: which exchange rate applies. That difference decides whether a creditor recovers close to full value or a small fraction of it, and it is the reason lenders, suppliers, and depositors across the country are watching the courts so closely.
Since the financial collapse began in late 2019, the Lebanese pound has lost the overwhelming majority of its value, and the gap between the old official peg and the market rate has turned routine repayment into a contested legal question. Whether you are trying to collect on a loan, settle a supplier invoice, or defend against an unfair demand, understanding how the courts treat dollar obligations is now essential.
The legal status of foreign currency debts during the crisis
The scale of Lebanon's downturn frames every currency dispute. Between 2018 and 2021 the economy contracted by 37.2%, one of the steepest peacetime contractions recorded anywhere, according to the World Bank's Lebanon Economic Monitor. Inflation reached 231.3% in 2023. In that environment, the pound value of a fixed dollar debt swings enormously depending on when and how it is paid.
Lebanese law itself has not changed. The Code of Obligations and Contracts and the Code of Money and Credit still allow a debtor to discharge a debt denominated in foreign currency by paying the equivalent in national currency. That principle, sometimes called monetary nominalism, was straightforward when one dollar bought a stable and predictable number of pounds. Once the peg broke, the same rule became a battleground, because a debtor paying at the old official rate transfers almost nothing of real value to the creditor.
How courts treat USD versus LBP repayment obligations
The core tension is simple to state. A creditor who lent or invoiced in dollars wants dollars, or at least the market pound value of those dollars. A debtor wants to pay pounds at the lowest possible rate, ideally the old peg. Lebanese courts sit in the middle, and their answers have not been uniform.
Some execution judges have accepted repayment in pounds at the old official rate, effectively wiping out most of the creditor's claim. Others have applied higher rates or refused to treat restricted bank instruments as genuine payment. The absence of settled guidance from the highest court means outcomes can vary from one courtroom to the next, which makes early legal advice valuable rather than optional.
A second layer of complexity comes from the type of dollar involved. Not every dollar is equal in today's Lebanon.
Lollar dollars versus fresh dollars
Practitioners now distinguish sharply between two kinds of dollars. A "lollar" is a dollar sitting inside a Lebanese bank account before the crisis, technically a dollar but restricted by withdrawal limits and worth far less than cash on the open market. A "fresh" dollar is physical cash or a transfer that moves freely, outside the banking sector's restrictions.
This distinction drives many repayment disputes. A debtor who offers a banker's cheque drawn on a trapped account is offering lollars, not fresh dollars. Courts have increasingly held that such an instrument does not validly discharge an obligation that was contracted in real, transferable dollars. For creditors, insisting on fresh funds is often the difference between recovering value and recovering paper.
Key rulings and their implications
Several patterns have emerged from Lebanese and foreign courts, and they matter for anyone holding or owing a dollar obligation.
Inside Lebanon, execution judges early in the crisis sometimes allowed debtors to deposit pound cheques or lollar instruments to satisfy dollar debts. Creditors objected because banks would not release the underlying funds in usable form. Over time, a growing body of decisions has treated restricted bank cheques as insufficient to extinguish a fresh dollar debt, though this is a trend rather than a fixed rule.
Outside Lebanon, courts applying foreign law have gone further. In litigation before the English courts, depositors sued Lebanese banks that tried to settle dollar balances in pounds or lollars at a small fraction of market value. The English High Court rejected that approach and ordered actual dollar payment. These decisions carry weight for contracts governed by foreign law or containing a foreign dispute resolution clause, because they show that the choice of governing law and forum can decide whether a creditor recovers real dollars or devalued substitutes.
The practical implication is direct. Where a claim can be brought outside Lebanon under foreign law, a creditor's prospects of full recovery improve substantially. Where the only forum is a Lebanese execution court, the outcome is far less certain.
Contractual clauses affecting the currency of payment
Much of the risk in a dollar debt is decided before any dispute, in the drafting of the underlying contract. A few clauses carry outsized weight now.
- Currency of payment clause. State not only that the debt is in dollars but that payment must be made in fresh US dollar cash or an equivalent unrestricted transfer, expressly excluding lollar bank instruments.
- Exchange rate clause. If pound payment is ever contemplated, define the rate by reference to a published market benchmark rather than leaving it to a court to choose among competing rates.
- Place of payment. Specifying payment outside Lebanon can change which law and which practical constraints apply.
- Governing law and dispute resolution. Choosing a foreign governing law, or an arbitration clause with a foreign seat, can be decisive given how differently Lebanese and foreign courts have treated these debts.
For businesses negotiating new agreements, these choices deserve as much attention as price. The same currency logic applies well beyond loans: any dollar-denominated rent, supply contract, or property payment raises the identical repayment questions and benefits from the same protective drafting.
Options for renegotiating or enforcing a debt
When a dollar debt is already outstanding, a creditor or debtor generally faces three broad paths.
The first is negotiated settlement. Given the uncertainty in the courts, many parties agree on a discounted fresh dollar payment or a structured schedule rather than gamble on litigation. A settlement that specifies fresh funds and a clear release can be more valuable than a favorable judgment that proves hard to enforce.
The second is enforcement through the Lebanese courts. This route is available but uncertain, because the exchange rate a judge applies and the treatment of bank instruments can vary. Anyone taking this path should assess in advance how a local execution judge is likely to handle the currency question. If litigation becomes necessary, it is worth understanding when to hire a litigation attorney in Lebanon so that strategy is set before a claim is filed.
The third is arbitration or foreign enforcement, where the contract allows it. An arbitral award or a foreign judgment applying foreign law may deliver a fresh dollar result that a Lebanese execution court would not. This path depends heavily on what the original contract provided, which is why the drafting stage matters so much.
Legal strategies for protecting your financial interests
Whether you are a creditor trying to recover or a debtor facing an unreasonable demand, a few strategies consistently reduce risk.
Document the nature of every dollar involved. Whether funds are fresh or lollar, when an account was opened, and how payments were offered can all determine whether an obligation is validly discharged. Keep records of the exact instruments tendered and refused.
Assess the forum early. Because Lebanese and foreign courts diverge so sharply, identifying the strongest available forum, and confirming whether a foreign law or arbitration clause applies, should happen at the outset rather than after a dispute hardens.
Get contract language right going forward. Every new dollar-denominated agreement is a chance to specify fresh funds, define the exchange rate, and choose a favorable governing law and dispute mechanism. Phoenix Law Firm advises Lebanese and foreign clients on exactly these clauses across banking, corporate, and real estate matters, and can structure agreements so that a future currency dispute is far less likely to erode value.
If you are weighing a foreign forum, understanding how arbitration in Lebanon resolves commercial disputes will help you decide whether an arbitration clause belongs in your next agreement.
Moving forward on a dollar debt
If you are holding or owing a foreign currency debt in Lebanon, the most useful next step is a focused review of the underlying contract and the type of dollars in play, before you negotiate, pay, or litigate. That review determines which rate, which forum, and which strategy give you the best chance of protecting real value. Speak with a Lebanese banking and litigation lawyer who can map your specific obligation against the current state of the courts, and set a plan before a counterparty forces the timing.
Frequently asked questions
Can a debtor in Lebanon repay a USD debt in Lebanese pounds?
Yes. Lebanese law permits a debtor to settle a foreign currency debt in Lebanese pounds. The dispute is almost always about which exchange rate applies, since the old official rate leaves creditors with a fraction of the dollar value.
What is a 'lollar' and why does it matter for debt repayment?
A 'lollar' is a US dollar trapped inside a Lebanese bank account, subject to withdrawal restrictions and worth far less than cash dollars. Courts increasingly hold that paying with lollar cheques does not validly discharge a fresh dollar obligation.
How can a creditor protect against currency devaluation in a contract?
Specify payment in fresh US dollar cash, define the exchange rate and payment location, and consider an arbitration clause with a foreign seat so enforcement does not depend solely on Lebanese execution courts.
Can foreign courts order actual USD payment of a Lebanese debt?
Yes. Where a contract is governed by foreign law, courts outside Lebanon have ordered banks and debtors to pay in actual US dollars rather than devalued pounds or restricted lollars.
