In a letter leaked to Libyan media outlets yesterday, the Governor of the Central Bank of Libya (CBL), Naji Issa, addressed the Minister of the Interior and the heads of the Internal Security, Criminal Investigation, and Municipal Guard agencies to take more decisive action against unofficial foreign exchange (FX) dealers.
In the letter, the Governor urged them to take immediate legal action to close all shops, companies, and offices that have not been granted final authorization to conduct foreign currency exchange activities by the CBL, and to punish anyone dealing in foreign currencies outside the official sector.
The Governor also called for the closure of all electronic applications and WhatsApp groups used by these companies and for combating these practices – by all means. He emphasized the need to investigate the funds held by these shops and companies and to verify their sources of origin in accordance with applicable laws and regulations, as well as anti-money laundering and counter-terrorism financing regulations.
The dinar has slid to over LD 8 per dollar again
First, it must be recalled that the CBL Governor had called on the authorities to close all FX trading outlets previously – but it seems without success. It must be pointed out that there are many vested interests in the continuing operation of the multi-billion-dinar FX black-market, and its closure would need strong political and security will.
It is also unclear how the CBL hopes enforcement authorities will be able to close what are private WhatsApp FX dealers’ chatrooms.
The CBL Governor’s renewed call for the closure of the unlicensed black-market dealers is believed to be in response to the fact that the foreign exchange value of the Libyan dinar initially plateaued against hard currencies on the black-market to between the 7.50 to the 7.75 range and has now slid back to over the LD 8 per dollar rate (LD 8.25 yesterday).
Governor wants dinar at less than LD 7 per dollar
It will be recalled that the aim of the CBL Governor is to have the black-market rate at under LD 7 per dollar – much closer to the 6.5-odd official exchange rate. Indeed, on 8 April he said he wanted the gap at around 5 percent between the official and unofficial rates. However, the slide of the Libyan dinar over the last week has, reportedly, annoyed the Governor, who had thought his concerted efforts to strengthen the dinar were working.
Why is the dinar sliding again?
Different analysts and FX dealers have offered several reasons why the dinar is sliding again. For one, they believe the dinar is falling again because the black-market traders, and the foreign exchange market, have adjusted to the CBL’s new initiatives.
They also believe that there are bottlenecks in the process of distributing hard currency to end-users which have slowed the process and meant the actual volumes injected in the market, at any one time, are insufficient to bring the dinar down to below the LD 7 /dollar mark.
They hold the view that the Governor must ‘‘shock the market by drowning it in dollars in one burst’’. They believe that ”the big heads (top dogs)” in the black-market are so rich that they can control the market by buying up whatever amount the CBL is currently injecting into the market.
They also believe that with summer and school holidays approaching, more Libyans will need hard currency to travel abroad for holidays and health treatment. They also believe that many have refrained from buying dollars – delaying their purchasing decisions – waiting for the dinar to rise to the LD 6.90 mark.
However, as it has taken longer than the CBL Governor had hoped and many are unable to delay their purchasing decisions and have entered the FX market to satisfy their various needs for hard currency. That is why they believe the Governor must inject more hard currency into the market and ‘‘exhaust the black-market traders’ purchasing power’’.
Others believe currency traders are simply hoovering up whatever the CBL is injecting on the market, thereby reducing supply and increasing the exchange rate of the dollar again.
However, there is the alternative view that no matter how much hard currency the CBL injects into the black-market, the LD will at best hover around LD 8 to the dollar – as they believe structural impediments in the Libyan economy and the fact that Libya spends more dollars than it earns – will mean the dollar will – in the short to medium term – be over LD 8 to the dollar – at best.
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