The Libyan dinar surged to new recent highs against the major hard currencies, touching LD 4.80 per US dollar yesterday. It will be recalled that it was trading at as high as LD 9.70 per dollar in December last year.
On the face of it, there are several fundamental reasons why the Libyan dinar has gained value. There is the prospect of elections being held later this year, putting an end to the political split that many see as the fundamental cause of many of Libya’s current problems – political and economic.
There is also the increased Libyan oil production currently at around 1.2 million barrels per day. This, together with the rise in international crude oil prices means that there are actually more dollars entering the Libyan state’s coffers. Today, the National Oil Corporation’s website was quoting Brent at US$ 69.905 per barrel.
In the first week of January, the Central Bank of Libya (CBL) had released some better figures on the state of the Libyan economy. It showed that rampant spending in sectors such as wages and the balance of trade deficit were now under some kind of control.
The CBL had also announced that it was increasing the dollar family allowance from US$ 400 to US$ 500 per person and actually started to distribute it this month. Allowing recipients of the dollar allowance to be able to transfer and use it as they please in order to pay for goods and services and not forcing them to cash it in the black market was also seen as a positive move, black-market foreign exchange dealers explained.
But many Libyans are still sceptical that this exchange rate will last. Many see it as the market-makers sucking the dollars in and drying the market before manipulating it upwards again.
Whatever the real reasons, one black market trader Libya Herald spoke to in Tripoli today, based on anonymity, was adamant it was real and not a ‘’mirage’’.
There was suspicion that at this price the black-market traders were only selling small amounts, but our source said ‘‘There is dollar being sold. It is a real market. You can buy up to US$ 250,000 easily. Don’t be surprised the dollar has crashed. Don’t underestimate the effect of the US$ family allowance to every Libyan individual. That’s 6 million people. That’s a lot of money coming onto the market’’, he explained.
‘‘Equally, the opening of Letters of Credits (LCs). All the big businessmen had amassed a lot of dollars. But to open an LC (at the official exchange rate of LD 1.4 to the dollar) they needed to buy dinars in order to deposit them in their accounts. Remember the CBL insists on being paid 30 percent of any LC in cash – in dinars”.
”So ironically, those who were sitting on dollars were forced to buy dinars at any price so as not to miss out on an LC. Also people have ran out of money. There are no dinars on the market to buy dollars. So, demand for dollars has collapsed and supply is high.’’
‘‘The collapse of dollar and increased liquidity also meant that the exchange rate of cheques which used to have a premium also collapsed to the extent that now cheques are on parity with cash. The banks are now full of cash and I think the banks don’t have a liquidity crisis anymore’’.
‘‘I think if the big guys (black market-trader) offer a couple of million dollars on the black-market in one go, the dollar could collapse further. They are worried by this and that is why they are selling at even this low price. Their dollar values have been sliced in half in days. They are scared they will be stuck with a big loss. Some of them are sitting on tens of millions’’, he added.
But he insists this must have been orchestrated by the CBL and specifically by its Tripoli Governor Saddek Kaber. ‘‘Saddek Kaber laid a trap for the big black-market traders and they fell for it’’.
‘’A couple of months ago he was raising the red flag saying the country’s finances were in deep crisis. He suckered the big guns in enticing them into stockpiling dollars, and now he has got his revenge on them. If he could do this all along, why didn’t he do it last year? Why did he wait so long? This must have been planned”, he speculated.
He pointed out that usually the Libyan black-market exchange rate reacts sharply and instantly (in favour of the dollar) to bad news in Libya. He questioned how come it failed to do the same to the militia clash that shut Mitiga airport for 6 days last week and to the two bombs in Benghazi. ‘‘The market has been flooded with dollars’’, he concluded.
There is also the view that Kaber was fearful of losing his post at last. After the House of Representatives appointed a new successor in Mohamed Shukri, and rumours that a sizeable number of High State Council members were in favour of his replacement – he feared his time was up.
Asked what are the prospects in the coming weeks and months for the foreign exchange rate, he replied: ‘’Expect anything. If things don’t work out expect the dollar to shoot up again’’ he said and ended by quoting the oft repeated Herodotus line. “From Libya comes the new”.
Indeed. Only in Libya can a foreign exchange black-market trader quote Herodotus.