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With Details: Al-Safi: “The New Leadership of the Central Bank Relies on a Strategy of Providing Market-Reassuring Information”
Economic expert Mohamed Al-Safi published an article on his page, discussing the use of information as a monetary tool in Libya.
When monetary tools are mentioned, discussions often focus on traditional instruments such as interest rates or exchange rates. However, positive and disciplined communication with the market is an equally significant monetary tool.
The new leadership of the Central Bank of Libya has begun to clearly demonstrate its characteristics, effectively employing one of the strongest monetary tools at its disposal: good communication and information dissemination.
The new management relies on a strategy of delivering information that reassures the market, leveraging the principle that “capital is cowardly” to steer it away from speculative markets and reduce speculators’ impact on the Libyan economy. This strategy is not limited to information sharing but extends to restoring trust through consistent decision-making and defending those decisions in practice. The alignment between declared policies and their transparent implementation fosters confidence in the institution, signaling that the Central Bank has a clear plan and is determined to execute it.
This approach marks a departure from the previous management, which often caused market anxiety and used information negatively (e.g., raising the red flag in 2015), destabilizing the market. In contrast, the current leadership employs realistic reassurance as a tool to prevent market chaos.
Exchange Rate Messages as a Model for Monetary Communication
Messages concerning exchange rates are a prime example of using communication as a monetary tool. The Central Bank has conveyed clear signals about its intention to lower the exchange rate, reducing incentives for capital that had previously engaged in speculative dollar trading for profit. This strategy lessens artificial demand for the dollar as a speculative commodity and promotes its real use for trade and imports.
Liquidity Management and New Banknote Announcement
Regarding liquidity issues, announcing the printing of new banknotes might encourage those holding large sums outside the banking system (so-called “under the mattress” savings) to deposit these funds in banks, fearing future difficulties in using them. This measure could reintegrate part of the money circulating outside the banking system into the official economic cycle.
Challenges to Success
Despite its promising approach, there are risks that could hinder these policies, including:
- A decline in oil revenues might weaken the Central Bank’s ability to defend the current exchange rate unless reserves are utilized.
- Any disruptions in electronic payment systems or delays in printing new currency could undermine trust in the Bank’s ability to execute its strategy.
Conclusion
Relying on information as a monetary tool reflects a strategic shift in the Central Bank’s management. The aim is to build trust, reduce speculation, and steer the economy toward stability. However, achieving complete success requires addressing external challenges and enhancing coordination between monetary and fiscal policies.
