With the background of the weakening Libyan dinar with its high black-market exchange rate and the Central Bank of Libya’s efforts to stabilise it by reducing hard currency demand by limiting imports and its efforts to solve the cash crisis and loss of public confidence in the Libyan economy and its banking system, the CBL launched last Thursday (25 September) Certificates of Deposit worth 15 billion dinars, starting from October to December this year. The expected annual profit margin for these certificates is 7.5% for banks and 6.5% for investment clients.
The announcements of the novel idea in Libya’s recent history of certificates of deposits has led to much social and traditional media debate about the economy. One of the leading media commentators on the Libyan economy is foremost Libyan businessman Husni Bey.
Speaking exclusively to Libya Herald yesterday, Bey said Libya’s monetary system is at a crossroads. Outlining the stark realities of the current exchange rate regime, the challenges of excess liquidity, and the CBL’s controversial reserve policies, he proposed practical solutions to curb speculation, narrow the exchange rate gap between the official FX and black-market, and strengthen the Libyan dinar. Here is his in-depth analysis:
A. The Current Situation – The Status Quo
Every day, Libya earns around $100 million from oil and gas sales ($36.5 billion annually). The Central Bank sells these dollars at the fixed official rate of 6.220 dinars, raising 622 million dinars daily. In practice, this privileged rate is accessible to only about 100,000 “lucky” Libyans, who purchase the $100 million at 6.220. The remaining 8.6 million Libyans must buy back the same dollars from these “lucky few” at the parallel (black-market) rate of 7.400 dinars — paying 744 million dinars daily. The difference (122 million dinars every day) is effectively transferred from the majority to a small minority, amounting to 44.5 billion dinars annually in unearned profits. Question: Do Libyans wish to continue with this unequal system?
B. The Proposed Alternative – Deposit Certificates
To address monetary distortions, the Central Bank has introduced 15 billion dinars in deposit certificates (7.5% for banks, 6.5% for investors).
Goal: withdraw excess liquidity from the market, where money supply exceeded 170 billion dinars by August 2025. This represents 8.7% of total liquidity, designed to rebalance dinar supply against demand for foreign currencies. The ultimate aim is to narrow the exchange rate gap, currently above 20%, which fuels speculation.
C. The Reserve Requirement Problem
Husni Bey stressed that transparency and fairness require adherence to existing banking laws: By law, commercial banks must hold a 30% statutory reserve (about 33.6 billion dinars of 112 billion in deposits). This reserve earns no interest. In practice, actual reserves stand at ~59 billion dinars, meaning banks are holding 25 billion dinars in excess reserves.
By law, such excess reserves should earn interest — but no returns are being paid. Worse, these excess reserves were not voluntary: they were imposed by the Central Bank to cover obligations in dinars it did not possess, effectively creating new money artificially. This practice inflated liquidity during 2023 and Q1 2024, fuelling speculation and weakening monetary stability.
In addition: Central Bank liabilities to banks = 82.1 billion dinars. Of this, 24 billion represents unsettled trade credits (letters of credit) that were already fully funded by traders but remain uncleared for months. Bottom line: out of 112 billion in deposits, only 28 billion dinars are free reserves, plus 54 billion dinars in circulating cash, leaving the economy with 82 billion dinars in usable liquidity.
D. The Auction-Based Solution
To complement deposit certificates, Husni Bey proposes transparent weekly dollar auctions, designed to break speculation and ensure fairness:
1. Auction volumes: $50–150 million per week (possibly more than once weekly).
2. 20% allocation: goes to the highest bidder(s).
3. 80% allocation: distributed among all other qualified bidders at the same clearing price, with no one receiving more than 2% of the total auction.
4. Unallocated balances: redistributed proportionally among participants under the 2% cap.
5. All settlements: executed at the highest bid price. Principles Behind the Model: Incentives: Highest bidders gain an advantage with up to 20%.
Wider participation: The 80% pool ensures small and medium institutions are included.
Risk management: The 2% cap prevents excessive concentration and systemic risk.
Transparency: One settlement price eliminates hidden advantages.
Expected outcome: Reduced speculative demand. A smaller money base in circulation. A narrowed gap between official and parallel rates to a maximum of 5%, stabilizing and strengthening the Libyan dinar.
E. Conclusion According to Husni Bey:
1. The status quo unfairly enriches a minority while burdening the majority of Libyans.
2. Deposit certificates are a necessary first step to absorb liquidity.
3. Public auctions are critical to cut speculation and narrow the exchange rate gap.
4. Legal compliance with reserve laws must be restored, ensuring banks are compensated for excess reserves.
5. Fiscal discipline — avoiding monetary financing of budget deficits — remains the foundation of a strong dinar.
In conclusion, Bey said “Libya faces a choice: continue with a system that benefits the few at the expense of the many, or adopt transparent reforms that restore fairness, stability, and confidence in our currency.”
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