For most Libyans, the exchange rate is no longer an abstract economic indicator. It is reflected in the price of food, medicine, household goods, travel, education and almost every activity that depends, directly or indirectly, on foreign currency.
That is why the recent movement of the US dollar towards LD 10 in Libya’s parallel market is more than another exchange-rate headline. On 21 September 2026, the dollar was reported at around LD 9.71 in cash transactions and LD 9.88 through cheques and bank transfers, while the Central Bank of Libya’s average official rate was around LD 6.37 per dollar.
The resulting gap is significant.
But the more important question is not simply why the parallel-market rate is approaching LD 10.
It is this:
Why does such a substantial gap persist despite repeated measures to increase foreign-currency availability and formalise the foreign-exchange market?
That question takes us beyond the exchange rate itself.
The gap is the starting point, not the conclusion
A large difference between an official exchange rate and the rate prevailing outside the formal system is not, by itself, proof that a particular policy has failed.
It is, however, a signal.
It suggests that the demand for foreign currency is not being fully accommodated through formal channels at the official rate, or that expectations, access constraints and other market forces are creating a persistent premium outside the formal system.
The Central Bank of Libya has taken several steps to address this problem.
These have included exchange-rate adjustments, increased foreign-exchange sales, measures to improve access to foreign currency through commercial banks, and efforts to organise the foreign-exchange market through licensed exchange companies and offices.
In July 2026, for example, the CBL reported that it was following up on the licensing of exchange companies and offices under the approved regulatory framework, alongside coordination with the Ministry of Interior to organise the foreign-exchange market and limit illegal practices. These measures matter.
They indicate that the policy response has not been limited to changing the official price of the dollar. It has also sought to expand and formalise the channels through which foreign currency reaches households and businesses. Yet the gap remains.
That is where the deeper economic question begins.
Formalising the market does not eliminate excess demand
The expansion of formal exchange channels can improve transparency, bring transactions under regulatory oversight and reduce reliance on informal mechanisms. But formalising the supply side does not automatically remove the demand pressures that created the parallel market in the first place.
If demand for foreign currency remains greater than the amount that can be supplied through formal channels at the prevailing official rate, a parallel premium can continue to emerge. This is why the exchange-rate problem cannot be understood simply as a problem of insufficient dollar supply.
It is also a question of why the demand for dollars remains so persistent.
The IMF’s 2026 assessment is relevant here. It noted that Libya had undertaken two exchange-rate adjustments since April 2025 and that the CBL had made significant foreign-exchange sales. Nevertheless, the gap between the official and parallel rates remained sizeable, reflecting what the IMF described as persistent excess demand for foreign currency. This observation changes the nature of the debate.
If significant FX sales and expanded formal channels coexist with a substantial parallel-market premium, then the central policy question becomes less about the headline exchange rate and more about the structure of foreign-currency demand.
The fiscal dimension cannot be separated from the exchange rate
Exchange-rate pressure does not emerge in isolation
It is connected to the broader balance between government spending, domestic liquidity, imports, foreign-exchange demand, inflation and productive capacity. Libya's fiscal position makes this relationship particularly important.
The IMF reported that Libya's fiscal deficit reached around 30% of GDP in 2025, while public debt had risen to approximately 146% of GDP. It also noted that inflation had moved into double digits, reducing purchasing power. These are not simply fiscal statistics. They help explain why the exchange-rate debate cannot be separated from the wider macroeconomic imbalance.
When public expenditure expands significantly in an economy with limited domestic production and high dependence on imports, part of the resulting demand can translate into demand for foreign currency.
The exchange rate then becomes one of the places where those pressures become visible. This is why the IMF's assessment makes an important distinction: exchange-rate adjustment can help, but it cannot substitute for fiscal consolidation. In the absence of meaningful fiscal adjustment, measures by the CBL to contain exchange-rate pressure can provide only temporary relief.
The cost of maintaining foreign-currency availability
There is another question that deserves attention.
How much foreign currency is being supplied through the formal system, and what does that tell us about the underlying demand?
According to data reported from the Central Bank, foreign-currency use had exceeded $20 billion by the end of August 2026, compared with approximately $15 billion in oil revenues and royalties during the same period. Letters of credit accounted for more than $9 billion of foreign-currency use.
These figures require careful interpretation. Foreign-currency use is not necessarily equivalent to reserve depletion, nor does the comparison with oil revenues alone capture every source of FX availability. But the scale is important.
It raises a fundamental question about the sustainability of foreign-exchange demand and about how the different channels of FX use interact with the wider economy.
The issue is therefore not simply whether the Central Bank is supplying enough dollars. It is also whether the economy is generating a level and composition of foreign-currency demand that can be sustained without continuous pressure on reserves, the exchange rate and prices.
The parallel market is not just a problem to suppress
The parallel market is often discussed as something that should simply be eliminated. But from an economic perspective, it can also be viewed as an indicator.
Its premium reflects information about unmet demand, expectations, access to formal FX channels and the behaviour of economic actors. The premium does not tell us exactly which factor is responsible for the pressure. But it tells us that the formal market and the demand for foreign currency are still not fully aligned.
This distinction matters.
If the response focuses exclusively on suppressing the parallel market without understanding the demand behind it, the pressure may simply reappear elsewhere. A sustainable solution requires understanding the mechanisms producing that demand.
Are we treating the symptom?
The evidence does not support a simple conclusion that exchange-rate intervention is either entirely ineffective or entirely successful.
The reality is more complicated.
The Central Bank has adjusted the exchange rate, increased FX sales, expanded formal access and worked to regulate the exchange sector. These measures can address important immediate constraints. Yet the persistence of a large gap between the official and parallel markets suggests that the underlying imbalance has not been fully resolved.
The IMF's assessment reaches a similar conclusion from a broader macroeconomic perspective: without fiscal adjustment, continued reliance on depreciation, administrative measures and reserve drawdowns would become increasingly difficult to sustain and could lead to further inflation, depletion of external buffers and market distortions.
The central issue, therefore, may not be the exchange rate itself.
The exchange rate is where several pressures meet.
Fiscal expansion.
Import dependence.
Foreign-currency demand.
Inflation.
Expectations.
Access to formal FX.
Institutional coordination.
And the availability of reliable information about how foreign currency is being demanded and used.
This leads to a more useful question than whether the dollar should be at six, eight or ten dinars. What is driving the demand for foreign currency, and why does that demand remain strong despite substantial efforts to meet it through formal channels?
That is the question that should shape the next stage of the discussion. Because before deciding how much foreign currency Libya needs, it is necessary to understand where the demand is coming from, how it moves through the economy, and which parts of that demand are productive, precautionary, speculative or structurally generated by the wider economic system.
And that is where the exchange-rate debate becomes more than a discussion about a number on a screen. It becomes a question about how Libya's financial system actually works.
Dr Najat Altorjman is a Corporate Governance Researcher, founder of Financial Integrity and Public Spending Logic (FISL) and Banking Governance & Financial Integrity in Libya, of the Sunderland Business School at the University of Sunderland.
Strengthening the Libyan Dinar: Beyond Exchange Rate Intervention