Banking expert Noman Al-Bouri wrote in an article:<\/p>\n\n\n\n
If the state is spending more than the economy can bear, a full float will not solve the problem; it will simply make the exchange rate reflect the imbalance more quickly.<\/p>\n\n\n\n
At the same time, maintaining an artificial exchange rate while demand for dollars exceeds supply leads to gaps, speculation, distortions, and incentives for rent-seeking.<\/p>\n\n\n\n
Therefore, perhaps the solution for Libya today is not to \u201cfloat the dinar,\u201d but rather to \u201cliberalize the exchange rate as part of comprehensive fiscal reform.\u201d This requires a single package of measures:<\/p>\n\n\n\n
\u2013 Unify the budget and public spending.<\/p>\n\n\n\n
\u2013 Stop financing the deficit through expansionary policies.<\/p>\n\n\n\n
\u2013 Gradually control the wage bill and subsidies.<\/p>\n\n\n\n
\u2013 Manage the exchange rate on an economic rather than political basis.<\/p>\n\n\n\n
\u2013 Reduce the gap between the official and parallel exchange rates.<\/p>\n\n\n\n
\u2013 Direct spending toward investment and production rather than government consumption.<\/p>\n\n\n\n
\u2013 Protect low-income groups during the transition.<\/p>\n\n\n\n
\u2013 Give the private sector greater capacity for production and financing.<\/p>\n\n\n\n
The difference between exchange-rate liberalization and floating is essentially small, but they are not necessarily the same thing, and this distinction is very important in Libya\u2019s case.<\/p>\n\n\n\n
Exchange-rate liberalization<\/strong> means reducing the monetary authority\u2019s intervention in determining the exchange rate and allowing the dinar to move more freely according to supply and demand. This can be gradual and managed.<\/p>\n\n\n\n Floating<\/strong> is an exchange-rate system in which the value of the currency is primarily determined by market forces, with limited or non-targeted intervention by the central bank.<\/p>\n\n\n\n In other words:<\/p>\n\n\n\n Every float is a form of exchange-rate liberalization, but not every exchange-rate liberalization is a full float.<\/p>\n\n\n\n For example:<\/strong><\/p>\n\n\n\n If the Central Bank of Libya says:<\/p>\n\n\n\n \u201cWe will not set a fixed exchange rate for the dollar, but we will allow the dinar to move gradually according to supply and demand, and we will intervene when there are sharp fluctuations.\u201d<\/p>\n\n\n\n This is generally referred to as a flexible or managed exchange rate<\/strong>, rather than a completely free float.<\/p>\n\n\n\n But if it says:<\/p>\n\n\n\n \u201cWe will not set the dollar exchange rate, nor target a specific level for the dinar; the market will determine the rate.\u201d<\/p>\n\n\n\n Then we are closer to a free float<\/strong>.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Banking expert Noman Al-Bouri wrote in an article: If the state is spending more than the economy can bear, a full float will not solve the problem; it will simply make the exchange rate reflect the imbalance more quickly. At the same time, maintaining an artificial exchange rate while demand for dollars exceeds supply leads […]<\/p>\n","protected":false},"author":13,"featured_media":258476,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"iawp_total_views":0,"footnotes":""},"categories":[683],"tags":[613],"class_list":["post-258475","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-articles","tag-libya"],"acf":[],"yoast_head":"\n