Rate gap reflects wider imbalances
Libya – Economic and financial expert Abu Saif Aghnia said the continued gap between the official foreign-currency rate and its parallel-market price is linked to a set of economic, financial and monetary factors, noting that understanding the crisis requires breaking it down and moving from generalities to a precise analysis of its causes and how to address them.
Speculation feeds on lack of transparency and uncertainty
Aghnia told Sputnik that the gap between the two rates usually arises from structural imbalances in the foreign-exchange cycle and its relationship with the local-money cycle, and that these imbalances allow speculation to shift from a natural interaction of supply and demand into an organised process of drain.
He added that speculation networks benefit, in his words, from a lack of transparency and from uncertainty over foreign reserves and monetary policy, noting that irregular publication of information allows prices to be steered by expectations and rumours.
Rebound effect after foreign-currency injections
Aghnia said that holding foreign currencies during periods of tension and intensifying purchases when systems are opened create what is known as a rebound effect, which pushes the parallel-market currency rate higher even after the Central Bank of Libya injects foreign currency.
He noted that the Central Bank announced days ago that it had injected about three billion dollars into the domestic market, yet foreign-currency prices remained high, arguing that this reflects the limited impact of foreign-liquidity injections alone in addressing market imbalances.
Weak transmission of monetary policy
On the Central Bank of Libya’s tools, Aghnia said current measures are limited and that the bank is dealing with a large part of the crisis from a purely monetary perspective, explaining that the use of traditional tools such as deposit certificates and raising the required reserve ratio suffers from weak transmission of monetary-policy effects because of uncertainty and declining confidence in the banking system.
He added that individuals and traders prefer to hold a large share of their money outside the banking sector, which raises the share of cash circulating outside the banking system and limits the Central Bank’s ability to manage overall money supply with traditional tools.
An integrated package to address the crisis
Aghnia stressed that an effective response requires an integrated package of executive steps and coordination among the monetary, financial and commercial authorities, noting that controlling and managing demand for foreign currency and easing procedures are among the main pillars for addressing the crisis.
