Written by: Helmi Al-Gmati, Professor of Economics at the University of Benghazi
In my view, the decision to allow foreign transfers for small traders does not represent a solution to Libya’s dollar crisis so much as an attempt to improve the management of one of its symptoms. An economy does not achieve stability simply by opening new channels for obtaining foreign currency, but rather when these channels can meet genuine demand regularly and at a reasonable cost, within a consistent monetary and fiscal policy framework.
The fundamental problem is that the parallel market is driven not only by speculation but also by imbalances between domestic liquidity and the supply of foreign currency, gaps in currency allocation, and a lack of confidence in the continuity of official foreign exchange coverage. Therefore, allowing direct transfers may ease pressure on some traders, but it does not guarantee a decline in the dollar exchange rate unless unmet demand in the parallel market is reduced.
From an economic perspective, there is a fundamental difference between redistributing existing dollar resources and increasing the actual supply of foreign currency. If the new transfers are financed from the same existing resources, this amounts to reorganizing demand rather than addressing the underlying imbalance. However, if they help reduce reliance on the parallel market, lower import costs, and improve competition, they could produce a genuine positive economic impact.
In my assessment, the most difficult test facing the Central Bank of Libya is not issuing more circulars, but demonstrating its ability to achieve three objectives:
- Ensuring consistent access to foreign currency through the banking system.
- Narrowing the gap between the official and parallel market exchange rates.
- Translating any reduction in import costs into tangible benefits for consumers.
This cannot be separated from fiscal policy. Continued expansion of domestic spending without discipline proportionate to available resources could recreate demand for dollars, regardless of how many channels are opened to obtain foreign currency.
Personally, I view this decision as a supportive measure rather than a fundamental reform. It may benefit a segment of traders, but it will not succeed in restoring monetary stability unless it forms part of a broader effort to address imbalances in public finances, foreign exchange management, and confidence in institutions.
The economic benchmark is not how many channels we have opened to obtain dollars, but why the dollar remains scarce through official channels and expensive in the parallel market.
Exchange rate stability is not achieved through isolated decisions, but through an integrated economic policy that addresses the root causes of imbalances rather than merely their symptoms.
