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Saturday, May 28, 2016

Rival Libyan central banks print competing currencies

The battle between the UN-backed Libyan Government of National Accord (GNA) with PM Faiez Serraj and the rival Tobruk-based House of Representatives (HoR) under PM Abdullah Al-Thinni has resulted in several parallel institutions.

There are two National Oil Companies and two Central Banks. One Central Bank is headquartered in Bayda and the other in Tripoli. The UN and most of the international community recognize only the Tripoli-based bank. There have been meetings between officials of the two national oil companies that has resulted in an agreement to begin oil exports after they had ceased. Although officials of the two banks met in Tunis in an attempt to forge some sort of unification, they appear to be still going their own way with each issuing its own banknotes. Senior diplomats worry that two rival banknotes circulating may undermine the position of the new UN-brokered GNA in Tripoli and cause economic chaos.
The UK company De La Rue has long supplied notes for the Libyan government. It sent 70 million dinars worth about $50 million to the GNA central bank in Tripoli and is delivering another 1 billion dinars now and during Ramadan. The rival bank in Bayda, with governor Ali Salim al-Hibri, has reportedly printed 4 billion dinars worth of banknotes in Russia. According to diplomats, the two currencies will have different serial numbers, security details, and watermarks. They are each signed by their own bank governor as well. Many worry that the two competing, non-interchangeable currencies will boost inflation, which is already high at 14 percent per annum. Diplomats also worry the situation will cause further erosion in support for the UN-backed GNA.
The Bayda eastern central bank holds almost $185 million in gold and silver coins but cannot access it since the Tripoli-based central bank, which has the combination, will not give it to the Bayda bank. The banknote conflict could exacerbate the long lines formed to withdraw cash and make Libyans even more reluctance of Libyans to deposit cash in banks, making the liquidity crisis worse. From 2013 to 2015 bank deposits fell in Libya from 6 billion dinars to 3 billion dinars.
The new eastern notes of 20 and 50 dinars are to be put into circulation on June 1. The Bayda bank announced that the notes are signed by Governor Ali Al-Hibri of the eastern bank rather than Governor Al-Siddiq Al-Kabir of the Tripoli-based bank. A source in the bank said: "The printed notes are amounted to LYD 4 billion and are the same sizes and denominations as the current banknotes." The new notes will circulate with those used at present. The Tripoli-based central bank has made no comment on the Bayda notes as yet. However the United States has already commented on the eastern notes.
The US embassy issued commentary on its Facebook page. The statement notes that the US and 20 other countries at a recent Vienna meeting affirmed that the Central Bank of Libya (CBL) must function under the sole stewardship of the GNA. The Tripoli-based CBL is the only national banking institution under GNA stewardship. The statement went on:The United States has been formally advised by the Libyan Presidency Council (PC) in a letter dated May 23 that Mr. Ali El Hebri, claiming to act as the Governor of the Central Bank of Libya, concluded an agreement with an international firm to print and deliver a large quantity of Libyan dinar banknotes. 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.The US statement also warned about attempts to break into secure CBL facilities, meaning the safe with the gold and silver in Bayda. The US the statement claims will work with the GNA to ensure that Libya's wealth is not diverted for any fraudulent of corrupt purposes.
Given that the notes have different security features, water marks and serial numbers, and are also not signed by the recognized bank governor, it is strange to call these bills "counterfeit." Counterfeit bills are intended to look as much as possible as the real bills so they can be used exactly as the real ones. These bills make no attempt to do that. They are replacements for the Tripoli-based bills. The issuing of rival currencies appears to be part of widening divisions between the GNA and HoR making it less likely that the GNA can achieve its goal of unity.


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