An anonymous ‘‘Central Bank of Libya (CBL) official’’ briefed local Arabic-language media yesterday that the CBL had signed a new contract the previous day with a printing company worth 30 billion dinars of the “20 dinars” denomination.
This comes in addition to the previous contracts worth 60 billion dinars that are being supplied. The report said the next quantity is expected to be 70 billion dinars this year, with the possibility of adding a new “50 dinar” denomination.
This, the report said, comes after the success of the plan to develop electronic payment services, and its success in withdrawing counterfeit denominations that were causing additional pressure on the dollar exchange rate.
The CBL official also claimed that the price of the dollar in Sukuk (Islamic bonds) and remittances will be cheaper than cash ‘‘very soon’’.
He added that this coincides with a significant decline in the price of the dollar on the black market (to around LD 9.35 / dollar today), and, the official claimed, the expectations from black-market currency traders of a further decline. This, the CBL source claimed, was as a result of what he called ‘‘a large supply’’ of cash dollars now in the market. He claimed black-market traders fear a decline in the black-market FX price, caused by the CBL threat to offer $2.5 billion in facilities this week and prepared to inject $1 billion in cash.
The CBL’s attempts to psych-out the Libyan FX black-market
These claims and anonymous off-record briefings by the CBL to local media have been part of a concerted campaign by the CBL, on various levels, to psych-out the black-market for weeks, if not months or years. They have been threatening to flood the market with dollars in the hope that the FX rate will drop. Over the last two weeks it has worked as the dollar fell from LD 10.50 to LD 9.35 today. But it is unclear for how long these ”short-term sedatives”, as critics are calling them, will work.
Basic market fundamentals: dollar demand and supply?
It must be noted that the CBL’s track record has not been good in this regard. The CBL has failed to consistently over-supply the market to an extent that the black-market FX price is within a narrow margin of the official LD 6-plus price, or, as the CBL Governor had promised last summer, to ”under LD 7 per dollar” mark. However, demand for and use of the dollar by both the state and the private sector are consistently outstripping supply – and outstripping Libya’s actual annual dollar oil revenues. It is these basic fundamentals of finite supply and overspending that are fuelling the LD’s FX black-market rate – well beyond market sentiment or psychological campaigns by the CBL.
Loss of credibility?
Since a certain percentage of the black-market value of the LD FX rate against the dollar is subjective, a failure by the Governor to live up to his promises/ threats could undermine his credibility and that of the Libyan dinar. In other words, if CBL Governor Issa fails to flood the market, the LD will further lose its credibility on the FX market – dooming it to a weak currency for an unquantified period.
CBL to activate transfer of dollars between local bank accounts
Local media also reported today that ‘‘a banking source’’ has reported that the CBL intends to activate the service of transferring dollars between the accounts of bank customers through the instant transfer system.
This, the report said, will facilitate the movement of funds between accounts, and enable the transfer of foreign currencies between individuals and companies for all purposes. This includes the purchase of goods and services, as well as using them for foreign transfers in accordance with the available controls.
The report said this comes as part of the Central Bank’s endeavour to make the dollar a currency of exchange and payment through electronic payment systems.
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CBL leaks to local media: New currency arriving – Intention to pump US$ 2.5 in market on 1 April
