Libya's management of foreign reserves: The problem of balance in parallel markets

In the context of the management of the financial crisis in Libya, causing a distress by foreign reserves; the Central Bank in the city of Tripoli could not achieve full flexibility in the exchange rate of the Libyan dinar to the actual value of the Libyan currency.

That the demand for foreign reserves from all parties, the private sector and as well as the public on hard currency has increased to a large extent causing the balance loss between the official price of the Libyan dinar in the parallel markets.

Foreign reserves of Libya's official income are the oil and gas sector, which contributes to the increase in liquidity or decrease in the Libyan national wealth in the Libyan economy, the proceeds income in terms of the money that, is raised in the economy of Libya.

The basic idea is the citizen's confidence in the policies of managing the exchange rate from the central bank from either the Libyan bank in the east or west and the absence of a fiscal union between the two banks in a unified financial institution due to the political boycott to each other in Libya.

In the past, we have mentioned the importance of the activity and role of the hidden economy along the lines of the formal economy, which is working on the smooth and flexible financial policy of the Central Bank to the commercial banks operating in Libya, which have become leaders on the completion of their supposed business activities.

As we all know, the central bank's preservation of foreign reserves in times of distress is one of the aims and policies of the Libyan treasury to support the Libyan dinar when it deteriorates in order to strike a balance between demand and supply on foreign currencies and reduce exposure to negative external shocks, by maintaining foreign reserves.

 Libya's financial crisis is being driven by a contraction in foreign exchange at the Libyan treasury because of the real deterioration in Libya's oil and gas prices, which is often exported on the black market route at less than official international prices.

This economic situation in Libya will lead to an increased confidence in the Libyan parallel markets and the ability of the Libyan parallel markets to meet the demand of US dollars available to their debt and put it within the reach of the private sector to deal with foreign trade.

The Libyan parallel markets increase their ability to calculate the shock of money available to face the Libyan Central Bank of Libya of their economic reforms.

The current situation in Libya does not contribute to improving the capabilities of the Libyan economy and the joint cooperation between the private and government sectors to the large and successive fluctuations in the global financial markets.

The Libyan frozen assets and Libyan foreign investments abroad are not currently working toward completing the axis support for the Libyan national economy.

The main focus of the Libyan economy today is oil and gas, which is the main supporter of increasing the financial resources of the Libyan treasury, the preservation of these funds is extremely important in times of adversity and is likely to occur in the near future.

Hence, the importance of the economic cycle in Libya, in terms of the sound management of foreign reserves, is to increase the economy's ability and to withstand external shocks through the global crisis in terms of easy access to hard currency again.

In the end, I can praise the role of the private sector, which is working to build a free national economy away from the gap between the financial institutions, which constitute to the real problem, including differences of settlements in the establishment of Libyan economic reforms and the introduction of alternatives, which works to promote the Libyan national economy.

   

By Professor Ramzi Halim Mavrakis

Businessman - Libyan political and economic writer and analyst

Resident in the United States of America