Al-Gmati: “When Monetary Dysfunction Becomes Normalised, the Crisis Has Transcended Economics and Become a Crisis of Awareness and Institutions”

By: Economics Professor Dr. Helmi Al-Gmati

The most serious damage inflicted on monetary policy in Libya is not merely the failure of successive decisions to control the foreign exchange market, the widening gap between the official and parallel exchange rates, or the depletion of foreign currency reserves. More alarming is the fact that these imbalances have become an accepted reality, that the inability to manage monetary affairs has turned into an undeclared policy, and that failure is repeatedly presented as a new reform measure.

At the Central Bank of Libya, the problem is no longer simply a matter of weak monetary instruments or poor judgement in managing the exchange rate and liquidity. Rather, it has become linked to a deeper dysfunction in the philosophy underpinning monetary policy management, the institution’s independence, and its ability to impose fair rules on the market.

When monetary policy retreats from its role in protecting the value of the currency and ensuring stability, while networks of vested interests linked to documentary credits gain the greatest influence over foreign currency allocation, we face a dangerous economic paradox: an institution that is supposed to manage foreign currency in accordance with the requirements of the public interest, while the mechanisms for allocating it become a field in which rents grow and wealth is accumulated at the expense of the economy and society.

When access to foreign currency becomes a privilege reserved for those with influence and the ability to obtain documentary credits, while citizens bear the cost of the dinar’s depreciation and rising prices, we are no longer facing merely a dysfunction in the foreign exchange market. We are facing a distortion of distributive justice and equal opportunities.

Even more concerning is the repeated introduction of weak monetary decisions and changes to exchange rates, fees, and foreign currency sales mechanisms without addressing the root causes of the crisis, such as weak oversight, distortions in foreign currency allocation, the disconnect between monetary and fiscal policies, and the absence of genuine accountability for the outcomes of these decisions.

The most dangerous thing that could happen to the Central Bank of Libya is for it to become accustomed to failure until failure becomes part of its operating system, while society becomes accustomed to the depletion of its wealth until it loses the ability to recognise the scale of what is being lost.

The problem does not lie in the existence of documentary credits as a legitimate instrument for financing trade. Rather, it lies in their transformation, in the absence of transparency, oversight, and competition, into channels for generating economic rents, monopolies, and redistributing wealth in favour of specific groups. Economically, this can be described as a parallel monetary rent economy operating within the formal economy.

The truth that must be stated clearly is that nothing poses a greater threat to the Libyan economy than vested interests becoming more powerful than monetary policy, foreign currency management becoming subject to influence rather than economic efficiency, and citizens being required to foot the bill for imbalances they played no part in creating.

Monetary defeat does not begin when the dinar loses part of its value. It begins when the monetary institution loses its ability to correct course and society loses its sense that what is happening is neither normal, acceptable, nor sustainable. At that point, we are no longer facing merely a Central Bank crisis, but a crisis of the state itself, in which public resources are managed according to the logic of private interests.