Al-Wahsh: “What Is Happening Reflects That the Central Bank Has Begun Realizing That Expanded Access to Foreign Currency Created Side Effects and Risks”

Economic expert Saber Al-Wahsh wrote in an article:

A Shift in Monetary Policy

The circulars numbered (472) and (494) issued by the Central Bank of Libya can be interpreted not merely as technical banking measures, but as part of a broader shift in monetary policy and the management of Libya’s foreign exchange market during 2026.

Economically, what is happening reflects that the Central Bank has begun to feel that the phase of “expanding access to foreign currency” created side effects and risks that now require a transition toward a phase of “control and discipline.” This can be analyzed from several angles:

First: From an Injection Policy to a Control Policy

During the past period — especially after the exchange rate adjustment, the expansion of letters of credit, the relative easing of transfers, and the return of foreign currency sales for various purposes — there was a major increase in demand for dollars through official channels.

Initially, the goal was to ease pressure on the parallel market, absorb genuine demand, and achieve monetary stability. However, it appears the Central Bank discovered that part of this demand was not entirely genuine. Speculation, fictitious letters of credit, invoice inflation, and transfers unsupported by real economic activity had entered the system.

As a result, the two circulars represent a phase of “regulatory braking” accompanying the previous expansion phase.

Second: Concern Over the Depletion of Foreign Reserves

The two circulars clearly reflect concern regarding the scale of foreign currency use, the rapid growth of letters of credit, and the widening demand for dollars.

This is highly significant because the Libyan economy depends primarily on oil revenues rather than a productive economy capable of generating foreign currency independently. Continued expansion without oversight could therefore lead to reserve depletion, a widening external deficit, and renewed pressure on the exchange rate.

In other words, the Central Bank does not want letters of credit and transfers to become an open channel for draining foreign reserves.

Third: The Circulars Reflect Weaknesses in the Behavior of Some Banks

Economically, when a central bank issues directives with this level of strictness, it often means it has detected weak compliance, lax document verification, or competition among some banks to process letters of credit without sufficient scrutiny.

This typically occurs when banks generate large profits from foreign currency commissions, shifting the focus from transaction quality to transaction volume.

The Central Bank is therefore attempting to rebalance the relationship between banking profitability and regulatory discipline.

Fourth: The Relationship With the Parallel Market

The circulars also carry an important dimension related to the parallel market.

Recently, the Central Bank succeeded in drawing a significant portion of demand away from the parallel market into the official system through direct transfers — particularly following arrangements with China — as well as through expanded foreign currency sales for personal purposes and letters of credit.

However, without strong oversight, these same mechanisms could become a source of officially supplied dollars flowing back into the parallel market. Some beneficiaries may obtain dollars at the official rate only to redirect them toward speculation or informal trade.

Fifth: An Indicator of Concern Over the Shadow Economy

The Libyan economy suffers from the expansion of the informal and shadow economy, creating a major challenge because a substantial portion of demand for dollars remains outside official oversight while sometimes being financed through formal channels.

The Central Bank is therefore trying to trace the sources of funds, verify the existence of genuine economic activity, and link transfers and letters of credit to real supporting documents.

This directly intersects with anti-money laundering efforts, combating financing of informal activities, and addressing commercial smuggling.

Sixth: What Do These Circulars Mean for the Future?

Economically, these circulars could lead to one of two paths:

The Positive Scenario

If oversight succeeds, fictitious demand for dollars could decline, reserve management could improve, the market could stabilize, and the parallel market could gradually weaken.

The Negative Scenario

However, if the measures lead to excessive delays, banking complications, or overregulation, the opposite may occur — traders could return to the parallel market, the parallel exchange rate could rise, and import costs could increase.

Therefore, the real challenge is not merely tightening controls, but achieving a balance between facilitating legitimate economic activity and preventing abuse of the foreign currency system.