What’s behind the surge of Libya’s bungee-jumping dinar?
TUNIS - Every weekday in Tripoli, immediately after Zuhr prayers, men can be seen pulling large suitcases towards the square in the Old City, just behind the palatial art deco building that houses the Central Bank of Libya.
They are black-market currency dealers, carrying tens of thousands of dollars, dinars and other currencies — all in cash. In the square, just by the clock tower built by some long-forgotten Ottoman pasha, they buy and sell the money at the daily ad hoc bourse, which sets the black-market exchange rate.
Black marketeers they may be but, under the windows of the Central Bank of Libya, they have become major players in the Libyan economy. Because of the Central Bank’s restrictions on foreign currency exchange and letters of credit, the black market has become the only source of foreign exchange for most Libyans, including those in the business community.
Three years ago, it did not matter a great deal. The difference between the official exchange rate set by the Central Bank — about 1.35 Libyan dinars to $1 — and the one operated by the black market remained small. Since mid-2015, however, there has been an inexorable decline in the black-market rate, interrupted by occasional brief rallies.
Fuelled by growing demand for dollars, plus the printing of ever more bank notes by the Tripoli-based Central Bank and the rival parallel central bank in the east, the black-market rate slid continuously.
When it passed the 3-dinar-to-$1 mark in August 2015, the Rada forces of strongman Abdul Rauf Kara arrested dealers, accusing them of profiteering. There were arrests again in April 2016, which briefly halted the decline but only because, with the dealers temporarily not operating, no one was able to buy or sell currency.
By last December, the rate was down to 9.70 dinars to the dollar and it was widely expected to break through the 10-dinar mark and go much further. At the beginning of the year, however, the dinar suddenly started to rally. The dollar rate rolled back, steadily moving down, reaching 4.50 dinars before settling at 5.15 dinars to the dollar.
People lost fortunes overnight but it has been a roller coaster ride that most Libyans are grateful for. Prices fell dramatically as a result. The prices of everything from second-hand cars to food have tumbled. In two weeks, the price of a kilo of onions went from 3 dinars to less than 1 dinar. The price of bread dropped 20%.
There are a wealth of theories as to why the value of the dinar surged, among them is that the market was calmed by the prospect of elections this year and the fact that Libyan oil production is up to 1.2 million barrels a day.
Another theory is that it the situation was orchestrated by Central Bank Governor Saddek Omar Elkaber to break the black market, reinforce his popularity with the public and keep his job. In December the House of Representatives, which had sacked Elkaber as governor, appointed Mohamed Shukri to the job and on January 29 swore him in to the post.
The real cause of the dinar’s surge is the flood of dollars into Libya. It is reported that $10 million a day is entering the black market. The main reason for the flood has been the Central Bank’s $400 allowance to every Libyan in foreign currency per year.
At the beginning of January, it said it had paid out approximately $2.8 billion in 2017 to almost 7 million people registered as Libyan citizens who had claimed the allowance. That figure raised eyebrows since the estimated population of Libya is put at no more than 6.5 million.
There have been other concerns about the allowance, not least allegations that a massive scam is being perpetrated by groups using it to profiteer from the difference between the official rate of exchange and the black-market rate.
Family heads may claim the $400 allowance for each member on their family book at the official rate, which averaged approximately 1.35 dinars to the dollar. Banks gave them a debit card to be used abroad. If there were five members in the family, the debit card could be used to withdraw up to $2,000.
It is said that organised groups offered up to 1,000 dinars for each $400 worth of credit on the cards, taking them by the bucketful abroad — mainly to
Istanbul — where the cash was withdrawn. It was returned to Libya in dollars and exchanged for Libyan dinars at the much higher black-market exchange rate. Hundreds of millions of dinars in profit is thought to have been made at the Libyan state’s expense.
The allowance was increased to $500 in January. Additionally, Libyans can apply for it and transfer the $500 to someone else with a dollar account at the same bank in Libya. This has made it even easier for the dealers to buy the dollars from others, withdraw them in cash abroad and then, back in Libya, exchange them for dinars.
The question in many Libyan minds is whether the new rate will stabilise around the 5-dinar mark or go back up, with painful effects on prices. No one, though, can give an answer.