The Central Bank of Libya issued instructions yesterday to Libyan commercial banks to begin issuing certificates of deposit. It is speculated that they will be set at a rate of 5 percent return on amount invested.
This Islamic/Sharia compliant investment banking product has been considered a step in the right direction by leading Libyan economic experts.
It is seen as contributing to supporting the value of the Libyan dinar and enhancing confidence in it.
Currently, excessive cash is used to speculate on the black-market foreign exchange causing hard currencies to rise and the Libyan dinar exchange rate to fall.
The move would also encourage customers to deposit and invest their savings in banks, rather than storing them at home.
It is estimated that there is currently LD 70 billion in cash outside the Libyan banking system.
With the banning of interest payment and political instability since the 2011 February revolution that ended the 42-year Qaddafi regime, Libyans prefer to keep their cash at home.
With a financial incentive to deposit cash in banks, the move is expected to contribute to alleviating the severity of the liquidity problem that the Libyan banking sector has been suffering from since the 2012 revolution.
