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Saturday, May 28, 2016

Presidency Council of Libyan unity government decides to recognize eastern released currency

In an incredible reversal of policy, the Presidency Council of the UN-backed Government of National Accord (GNA) decided to honor the rival banknotes printed in Russia for the Bayda-based Central Bank of Libya.

The bank notes have different security features, watermarks, and serial numbers from the Tripoli-based Central Bank recognized by and cooperating with the GNA. Both the U.S. and the Presidential Council had come out with statements that characterized the eastern notes as counterfeit. A statement by the U.S. embassy said:
The United States concurs with the Presidency Council’s view that such banknotes would be counterfeit and could undermine confidence in Libya’s currency and the CBL’s ability to manage monetary policy to enable economic recovery.
There is only one Libyan central bank recognized by the UN, the GNA and most of the international community — the one based in Tripoli. If the PC recognizes the bank notes, in effect the GNA is in practice recognizing the Bayda central bank as well. It will be interesting what the U.S. and the UN have to say about this or if they just ignore it, as often happens when the facts are inconvenient.
Before the rejection of the eastern banknotes, GNA Prime Minister Faiez Serraj had given a TV interview in which he suggested the extra eastern money would help solve Libya's serious cash shortage. As a tweet puts it: "This Sarraj interview on #Libya TV blessing eastern CBL's money printing was *before* the US envoy and embassy declared it illegal yesterday." When the US declared the eastern money counterfeit there was a strong reaction on social media as this tweet notes:" #Libyan social media,particularly in the east,awash with Anti-America vitriol over US interference during cash crisis." Perhaps the change of policy is intended to signal a rejection of foreign influence.
The PC explains that it changed its position after a meeting with members of the finance committee of the HoR. It was apparently agreed that the two rival central banks would jointly supervise the issuing of the new notes and that they would be distributed fairly throughout the country. The PC's original objection supposedly was that the arrival of 4 billion more Libyan dinars would destabilize the currency and cause inflation. The PC claimed that there were already 24 billion Libyan dinars in circulation. However, there are not enough dinars in the banks and banks are limiting withdrawals. Libyans distrust the banking system. Many buy hard currencies. There are often long queues at banks of people waiting to withdraw money. The east has complained that the Tripoli-based CB does not distribute a fair share of new currency to the east and claims its new notes are needed to deal with its own constant cash shortage.
Serraj made it one of his priorities to end the currency shortage and liquidity crisis. He now claims the east's banknotes may ease the problem. The HoR has assured the GNA that its own bills will be made available throughout the country. Many fear that having its own currency would cause the east to take a more independent line. It is taking an independent line! The Libya Herald notes:The United States is unlikely to be pleased by the PC’s change of mind. Yesterday it said it was gravely concerned and shared the PC’s earlier view that the new notes would be forgeries that would destabilise the Libyan Dinar. It insisted that the international community only recognised the Central Bank in Tripoli.The eastern notes are not likely to be accepted internationally except perhaps by a few countries. The two competing notes are likely to have wildly different values when exchanged for other currencies such as the US dollar or the Euro.

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