Libya will print 30 billion dinars to alleviate the liquidity shortage Economy News

The Central Bank of Libya said on Thursday that it had commissioned the British banknote printing company De La Rue to print 30 billion dinars ($6.250 billion) to “solve the problem of liquidity scarcity” in the country’s commercial banks.

The Central Bank said last Sunday that the problem of the liquidity shortage “will be gradually resolved” starting next January, in line with a plan approved by the Board of Directors of the Central Bank of Libya.

Libya has been suffering from a shortage of liquidity for years despite its oil wealth, and citizens have been forced to stand in queues outside banks to obtain cash and salaries since the overthrow of Muammar Gaddafi’s regime in 2011.

Libya’s economy depends heavily on oil revenues.

Central Bank data showed that government employee salaries constituted the largest proportion of spending and amounted to 48.6 billion dinars in the period from January to October last, out of total oil revenues of 67.8 billion dinars during that period.

The current exchange rate of the Libyan dinar against the dollar is 4.8 dinars.

The bank said – in a statement – that its governor, Naji Issa, met yesterday, Wednesday, with Cliff Vacher, the company’s CEO, and Michael Wilson, its regional director, to discuss implementing the contract. He added, “The meeting also discussed the schedule for receiving shipments.”

The bank said it intends to withdraw the old banknotes according to a timetable, but did not reveal further details.

Resorting to bank cards

The lack of liquidity in Libya has prompted the population to increasingly resort to bank cards.

Also, the lack of confidence in the already broken financial system means that cash is rarely re-injected into banks, as Libyans prefer to keep their cash on hand.

In addition to the lack of liquidity, government sector employees, who constitute the lion’s share of the working population in Libya (2.3 million out of 2.6 million), often receive their salaries in arrears.

A maximum limit for withdrawals from bank windows is set at one thousand dinars ($205), and this is often once a month.

An employee at a bank in Misrata (200 kilometers east of Tripoli), the country’s third largest city, said that the culture of not using money “has not yet taken root, but the younger generations are adopting it easily.”

Al-Qutait stressed to Agence France-Presse the importance of electronic solutions to facilitate daily transactions, especially in times of liquidity crisis, even if the infrastructure is still insufficient.

Economist Khaled Al-Dalaq told the same agency that while the lack of liquidity prompts many to switch to using cards, this must be accompanied by work “to make these services more accessible.”

Various banknotes

The political turmoil in Libya has caused additional side effects, such as multiple printings of 50 dinar banknotes.

Since 2014, Libya’s institutions have been caught between the two camps competing for power, and its Central Bank was no exception. Until last year, this bank remained divided into two parts: An internationally recognized headquarters is in the capital and another in Benghazi in the east, with their respective governors signing off on the printing of paper money.

In 2012, it introduced a new currency of 50 dinars, the largest denomination available, to make life easier for consumers who often make cash payments in the thousands.

But in April, the Central Bank announced the withdrawal of the 50 dinar notes due to the spread of “counterfeit” quantities of them, in addition to those issued by the bank and printed in Britain, and others printed in Russia and issued by the parallel eastern Libyan authorities.

The Central Bank had initially set a deadline for withdrawing banknotes (50 dinar category) from circulation at the end of August, before extending the deadline until the end of the year.

In an attempt to address the liquidity crisis, the bank pumped 15 billion dinars into the banking system in late October, while urging banks to “facilitate the issuance of cards” to customers, and demanding that commissions be reduced to further encourage Libyans to “electronic payment.”