{"id":255283,"date":"2025-10-22T13:40:17","date_gmt":"2025-10-22T11:40:17","guid":{"rendered":"https:\/\/sada.ly\/en\/?p=255283"},"modified":"2025-10-22T13:40:17","modified_gmt":"2025-10-22T11:40:17","slug":"businessman-hosni-bey-explains-the-dynamics-of-the-libyan-economy-and-the-causes-of-the-cash-shortage-crisis","status":"publish","type":"post","link":"https:\/\/sada.ly\/en\/businessman-hosni-bey-explains-the-dynamics-of-the-libyan-economy-and-the-causes-of-the-cash-shortage-crisis\/","title":{"rendered":"Businessman Hosni Bey Explains the Dynamics of the Libyan Economy and the Causes of the Cash Shortage Crisis"},"content":{"rendered":"\n

Libyan businessman Hosni Bey<\/strong> explained the dynamics of Libya\u2019s economy and the reasons behind the liquidity crisis during a session of the Economic Salon<\/em> \u2014 a forum that brings together leading economists, banking professionals, financial brokerage managers, businesspeople, and young entrepreneurs, alongside members of Libya\u2019s sovereign institutions.<\/p>\n\n\n\n

He said:<\/p>\n\n\n\n

\n

\u201cPersonally, I do not believe in opposing market mechanisms, even if the market is not perfect.\u201d<\/p>\n<\/blockquote>\n\n\n\n

He continued:<\/p>\n\n\n\n

\n

\u201cIn my view, electronic payments can help ease the problem, but economic, monetary, and fiscal dynamics in any country are deeply interconnected.\u201d<\/p>\n<\/blockquote>\n\n\n\n

General Framework in Libya<\/strong><\/h3>\n\n\n\n

Around 93% of public spending in Libya<\/strong> must be covered by revenues in U.S. dollars<\/strong>, whether from oil exports<\/strong> or foreign reserves<\/strong>.
This means the exchange rate<\/strong> must be set in a way that generates a sufficient amount of Libyan dinars (LD)<\/strong> to meet the government\u2019s financial needs.<\/p>\n\n\n\n

Interrelated Issues<\/strong><\/h3>\n\n\n\n

The liquidity shortage, dinar devaluation, and currency speculation are all tightly linked<\/strong> and mutually reinforcing<\/strong> challenges:<\/p>\n\n\n\n

    \n
  • Cash shortage<\/strong><\/li>\n\n\n\n
  • Devaluation of the dinar<\/strong><\/li>\n\n\n\n
  • Arbitrage between cash, checks, and the U.S. dollar<\/strong><\/li>\n<\/ul>\n\n\n\n

    Each reflects structural imbalances<\/strong> in the monetary base and liquidity management within the financial system.<\/p>\n\n\n\n

    The Liquidity Crisis: A Structural Problem<\/strong><\/h3>\n\n\n\n

    Libya\u2019s liquidity crisis is structural<\/strong>, not temporary, and stems from how reserves and monetary policies are managed by the Central Bank of Libya (CBL)<\/strong>.<\/p>\n\n\n\n

    Key facts:<\/strong><\/p>\n\n\n\n

      \n
    • Regulations require mandatory reserves<\/strong> equal to 30% of total deposits<\/strong>.<\/li>\n\n\n\n
    • Excess reserves<\/strong> in cash \u2014 currently over 20% of total deposits<\/strong> \u2014 have been withdrawn by the CBL<\/strong> from commercial banks.
      This constitutes a form of quantitative tightening (QT)<\/strong>, the opposite of quantitative easing (QE)<\/strong>.<\/li>\n\n\n\n
    • Technically, to alleviate the shortage of cash in circulation, the CBL should release these excess reserves<\/strong> and replace them with newly printed currency<\/strong> to restore public confidence in banks.<\/li>\n<\/ul>\n\n\n\n

      CBL\u2019s Measures and Statements<\/strong><\/h3>\n\n\n\n

      According to CBL data:<\/p>\n\n\n\n

        \n
      • The CBL expects the liquidity crisis to ease as 14 billion LYD<\/strong> in newly printed banknotes<\/strong> are distributed before the end of the year.<\/li>\n\n\n\n
      • The issue is expected to be fully resolved by 2026<\/strong>, with an additional 20 billion LYD<\/strong> in new notes.<\/li>\n\n\n\n
      • Current excess reserves<\/strong> are estimated at around 20 billion LYD<\/strong>, highlighting the extent of monetary tightening already in effect.<\/li>\n<\/ul>\n\n\n\n

        Exchange Rate and Public Spending<\/strong><\/h3>\n\n\n\n

        When the exchange rate fails to generate enough dinars to cover public spending:<\/p>\n\n\n\n

          \n
        • The government resorts to monetary financing<\/strong> of the deficit through the CBL.<\/li>\n\n\n\n
        • This increases the money supply (M3)<\/strong> and widens the gap between the official exchange rate<\/strong> and the parallel market rate<\/strong>.<\/li>\n\n\n\n
        • The widening gap fuels currency speculation<\/strong> and demand for dollars<\/strong>, worsening the crisis.<\/li>\n<\/ul>\n\n\n\n

          This gap not only undermines currency stability<\/strong> but also encourages inflation<\/strong> and erodes fiscal discipline<\/strong>.<\/p>\n\n\n\n

          Speculation and Price Differentials<\/strong><\/h3>\n\n\n\n

          The rise in arbitrage between cash, checks, and the dollar<\/strong> is a direct result of monetary policy distortions \u2014 and also deepens them.
          When the gap between official and parallel rates widens:<\/p>\n\n\n\n

            \n
          • Speculative trading intensifies.<\/li>\n\n\n\n
          • Cash becomes more valuable<\/strong> than checks or bank balances due to its scarcity<\/strong> and public trust<\/strong>.<\/li>\n<\/ul>\n\n\n\n

            Hosni Bey added:<\/p>\n\n\n\n

            \n

            \u201cYou cannot have both currency stability and deficit financing while maintaining reserves and a fixed exchange rate. That\u2019s a fantasy \u2014 one that has failed since 1982. It\u2019s a lie.\u201d<\/p>\n<\/blockquote>\n\n\n\n

            Certificates of Deposit and Rebalancing<\/strong><\/h3>\n\n\n\n

            The CBL<\/strong> previously used Certificates of Deposit (CDs)<\/strong> to address imbalances in the monetary base by shifting funds from:<\/p>\n\n\n\n

              \n
            • Current deposits (M1)<\/strong> to savings or term deposits (M2, M3)<\/strong>.<\/li>\n<\/ul>\n\n\n\n

              The aim was to absorb excess liquidity<\/strong> and convert it into longer-term savings instruments, reducing pressure on the cash market.
              However, the success of this approach depends heavily on restoring trust<\/strong> between banks and the public \u2014 and the first key to trust is liquidity availability<\/strong>.<\/p>\n\n\n\n

              Core Principles of Monetary Policy<\/strong><\/h3>\n\n\n\n

              The Central Bank of Libya<\/strong> must completely refrain from financing fiscal deficits<\/strong>, regardless of whether a formal budget exists.<\/p>\n\n\n\n

              Monetary financing of deficits leads to:<\/strong><\/p>\n\n\n\n

                \n
              • Expansion of the money supply<\/li>\n\n\n\n
              • Widening of the gap between official and parallel exchange rates<\/li>\n\n\n\n
              • Worsening of liquidity shortages when the CBL borrows from commercial banks<\/li>\n<\/ul>\n\n\n\n

                The wider the gap<\/strong>, the more speculation grows and pressure on the exchange rate intensifies<\/strong>.<\/p>\n\n\n\n

                Legal Framework (Libyan Law)<\/strong><\/h3>\n\n\n\n

                According to Libyan legislation:<\/p>\n\n\n\n

                  \n
                • The CBL cannot finance the government<\/strong> by more than 20% of the annual budget<\/strong>.<\/li>\n\n\n\n
                • This financing must be repaid within the following fiscal year<\/strong>.<\/li>\n\n\n\n
                • It cannot be repeated<\/strong> more than once.<\/li>\n<\/ul>\n\n\n\n

                  This provision aims to prevent chronic reliance on monetary deficit financing<\/strong> and to protect the stability of the monetary base<\/strong>.<\/p>\n\n\n\n

                  Rebalancing and Reforming the Monetary Base<\/strong><\/h3>\n\n\n\n

                  Achieving monetary stability<\/strong> would lead to:<\/p>\n\n\n\n

                    \n
                  • Eliminating the difference between cash and checks<\/strong>, ending speculative arbitrage.<\/li>\n\n\n\n
                  • Gradually releasing excess reserves<\/strong> by issuing new currency to ease the liquidity shortage.<\/li>\n\n\n\n
                  • Stabilizing the exchange rate<\/strong> so that public spending can be covered in dinars without resorting to inflationary financing.<\/li>\n\n\n\n
                  • Restoring trust<\/strong> between the banking system and the public through transparent and reliable financial tools.<\/li>\n<\/ul>\n\n\n\n

                    Conclusion<\/strong><\/h3>\n\n\n\n

                    Stabilizing Libya\u2019s financial and monetary systems requires:<\/p>\n\n\n\n

                      \n
                    • Firm adherence to the principle of no monetary deficit financing<\/strong>.<\/li>\n\n\n\n
                    • Aligning the exchange rate<\/strong> with the reality of public spending.<\/li>\n\n\n\n
                    • Rebuilding trust<\/strong> in the banking sector through clear and transparent policies.<\/li>\n\n\n\n
                    • Restructuring liquidity<\/strong> among cash, deposits, and foreign currencies.<\/li>\n\n\n\n
                    • Reinforcing fiscal discipline<\/strong>, ensuring that dollar revenues cover spending without depleting reserves.<\/li>\n<\/ul>\n\n\n\n

                      <\/p>\n","protected":false},"excerpt":{"rendered":"

                      Libyan businessman Hosni Bey explained the dynamics of Libya\u2019s economy and the reasons behind the liquidity crisis during a session of the Economic Salon \u2014 a forum that brings together leading economists, banking professionals, financial brokerage managers, businesspeople, and young entrepreneurs, alongside members of Libya\u2019s sovereign institutions. He said: \u201cPersonally, I do not believe in […]<\/p>\n","protected":false},"author":13,"featured_media":255284,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2],"tags":[636,613],"class_list":["post-255283","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-economy","tag-libya"],"acf":[],"_links":{"self":[{"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/posts\/255283","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/comments?post=255283"}],"version-history":[{"count":2,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/posts\/255283\/revisions"}],"predecessor-version":[{"id":255286,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/posts\/255283\/revisions\/255286"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/media\/255284"}],"wp:attachment":[{"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/media?parent=255283"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/categories?post=255283"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sada.ly\/en\/wp-json\/wp\/v2\/tags?post=255283"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}