By Libya Herald reporter.
Tripoli, 29 October 2016:
The chairman of the Beida-based Central Bank of Libya (CBL), Ali Hibri, has again called for the Libyan dinar to be devalued against other currencies such as the dollar.
According to the Beida-based branch of the Libyan news agency LANA, a senior member of the bank named as Ramzi Agha has confirmed Hibri making the proposal. His plans also includes reducing subsidies on goods and energy.
It is most unlikely that the Beida CBL would act unilaterally on this. Having one official rate of exchange for the dinar in the east and another in the west, but everyone using the same notes would bring anarchy to the market (even the Russian-printed LD 50 notes are being used in the west of the country, apart from Misrata). Libya may be full of parallel institutions, but while parallel CBLs and parallel governments are being be lived with, the same currency having different values in different places would be chaotic.
There are, though, already different black market rates for the dinar. In Tripoli today it was trading at LD 5.22 to the dollar while in Benghazi, dealers were quoting LD 5.27. The difference, however, simply reflects local hard currency availability. The bank rate remains the same across the country.
Hibri has called for a realignment of the dinar before. Other supporters of the move point out that Libya’s income is in dollars as is the price it pays for foreign imports (which in some cases it then subsidises domestically). A change would therefore make no difference to government spending abroad. One the other hand, if the dinar were devalued, the government would have far more money to spend at home.
Private importers, though, would be hit. So too, if the dinar were significantly devalued and currency controls eased, would the black market.
There is, too, strong emotional resistance to devaluation. Many Libyans see devaluation as an admission of failure, with a strong dinar considered a sign of a strong country and a strong economy.
That is not necessarily true. As China demonstrates, a weak currency can make a strong economy even stronger.