Leading Libyan businessman and regular economic commentator and critic, Husni Bey, had criticized since 1982 the Central Bank of Libya’s (CBL) past and current monetary approach to beat the market —a policy he says is based on, and commonly referred to, as the “Easing and Tightening” or “Stop and Go “strategy—in which the bank intermittently injects U.S. dollars in exchange for purchasing dinars.
Background
Bey’s commentary and critique come on the back of the (relatively) newly installed CBL Governor Issa’s attempt to implement monetary reforms. These include encouraging the use of e-payments by making it mandatory for all private and public revenue collectors to use e-payments, reducing the e-payments commission charged by banks and Switch companies, recalling currency (the old ‘‘triglia / Red Mullet’’ coloured LD 5 and 20 notes) by 30 September to fight the hoarding of cash at home, launching Islamic-Sharia compliant Certificates of Deposits to reduce cash in circulation, fighting speculation on the foreign exchange market by issuing licences for official FX bureaux, and defending the value of the Libyan dinar to reduce inflation, prices and the cost of living.
Governor Issa’s failed promise to end cash shortage and strengthen the dinar by October
Specifically, the CBL Governor had vowed to bring down the value of the LD against the US$ and to end the cash crisis by October. Unfortunately, yesterday, Libya Herald witnessed queues at several banks in Tripoli, and the LD-dollar exchange rate reached LD 7.80 to the dollar last week – way above the ‘‘under seven dinars’’ rate promised by the Governor. On 4 October the LD-dollar FX rate had fallen briefly to LD 6.94/dollar – four days after the September deadline to deposit the abandoned LD 5 and LD 20 triglia-coloured notes.
Bey, in an exclusive to Libya Herald today, proposed that Governor Issa’s policy has failed to achieve its core objective of narrowing the exchange rate gap between the official and parallel markets, whether in cash or cheque-based foreign exchange (FX) transactions.
Instead of closing the gap, the disparity has widened like a snowball, fostering an environment ripe for speculation. Speculative activity and policy ineffectiveness had always failed as the market found a way to speculate around CBL policies. Bey explained that speculative activity continues to flourish because of the growing divergence between the three FX markets. This dynamic undermines the Central Bank’s efforts to achieve monetary and price stability and exacerbates inflationary pressures.
Maintaining a fixed official dollar rate has aided speculators
Maintaining a fixed official dollar rate, he noted, has become a guarantee for speculators rather than a tool to protect citizens or support economic stability. It enables both domestic and foreign speculators to make easy profits while the CBL’s expansionary measures—whether through letters of credit, personal remittances, or small-trader cards—fail to address the root cause of the problem: the persistent structural gap between official and market rates.
The Ineffectiveness of Temporary Dollar Injections Maintaining a fixed official dollar rate
The CBL’s frequent announcement of fresh dollars injection and the recent announcement to inject US$ 2 billion, this sum represents only around 8.5% % of the government’s annual financial requirements and barely covers one month of obligations. This figure excludes the US$ 1 billion monthly fuel bill, of which US$ 660 million is imported. And about US$ 330 million is produced, refined and used locally—these expenses were not accounted for in any state budget since 1982.
Bey emphasized that Libya’s market is highly sensitive, elastic, and responsive to both economic and political developments. Therefore, policy changes without structural reform in the intervention model—whether executed through banks, exchange companies, or direct cash injections—cannot correct the underlying imbalance that fuels speculation.
A Call for Structural Reform in Monetary Policy To eliminate speculation
Bey called for a comprehensive reform of the CBL’s foreign exchange framework. He argued that speculation can only be curbed by completely closing the exchange rate gap, which requires a decisive shift away from the fixed exchange rate regime.
Instead, he proposed introducing a transparent FX tendering system where the market determines the exchange rate. While injecting US$ 2 billion at once may provide short-lived relief, it cannot deliver sustainable stability as long as the current 24% (cash) and 45% (cheque) gaps persist.
Bey further explained that the true equilibrium FX rate should not exceed 6.25 dinars per U.S. dollar. Selling approximately US$ 20 billion annually could cover 93% of government expenditure—estimated at 220 billion dinars—excluding fuel costs of about $12 billion. He also stressed the urgent need to reform fuel subsidies, suggesting they be converted into direct cash transfers to citizens.
The Root Causes of the Monetary Imbalance
The businessman traced the roots of Libya’s monetary instability to excessive money creation and misallocation of resources. During 2023–2024, about 40 billion dinars were created, while $6 billion in government revenues were diverted to build unnecessary reserves and gold holdings increased by 24 tons (worth around US$ 2 billion) bringing the total reserve cover to almost $98 Billion- or 5-years supply.
This policy expanded the money supply by 31% within 15 months, triggering inflationary waves and leading to the 27% FX surcharge introduced in late 2024, an undeclared tax that led to further inflation.
This life lasting crisis was compounded by the “cheque-burning” phenomenon, a symptom of deeper structural flaws in the monetary base. The CBL’s attempt to withdraw and replace part of the 73 billion dinars printed currency (53 billion from the UK-printed currency and 20 billion from Russian issues) resulted in an unexpected shortage of 10 billion dinars, revealing mismanagement and poor data accuracy in the currency replacement process were it resulted that the Russian prints were 10 billion over what was officially declared.
Conclusion: A New Strategy to Defeat Speculation
Bey concluded that continuing with the current tools and tactics will only reproduce the same failures of the 2015-2018 and 1982-2002 where the gap reached 1000%. The Central Bank must abandon the fixed exchange rate policy and instead adopt a market-driven approach. The most effective and transparent solution, he argued, is to sell U.S. dollars through weekly auctions—approximately US$ 350 million per week distributed to banks and licensed money exchangers.
This mechanism would:
- Allow the market to determine a realistic exchange rate.
- Close the gap between official and parallel markets.
- Eliminate speculative profits.
- Stabilize prices and rebuild confidence in the Libyan dinar.
In short, Bey says the best policy to defeat money speculators is the regular weekly auctioning of dollars in a transparent, competitive market framework. Only through such a strategy can Libya restore equilibrium, discipline monetary expansion, and achieve genuine financial stability.
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