Will Libya Devalue its Dinar?

The laws governing the banking sector in Libya authorize the CBL to revise the exchange rate of the dinar against other currencies in response to changes in supply and demand, as well as other economic policy priorities. Although Kabir may be considering devaluing the dinar, he has been reluctant to announce this publicly and appears to have been resisting pressure from the internationally recognized Government of National Accord to do so.

In his last press conference on April 23, Kabir said that painful economic decisions are necessary but fell short of outlining any major policy solutions for Libya’s ongoing economic crisis. The AB is also advocating temporary devaluation among other nonfiscal measures to rescue the economy. However, critics of this approach fear that devaluation would achieve nothing, functioning instead as a hidden tax that will create extra social and security costs for Libyan citizens.

In normal economic situations, devaluation is used as a way to increase international competitiveness as overseas demand for a country's goods and services is important in setting the pace of economic growth. When discussing devaluation, creating jobs is often the aim. When the prices of imported goods rise in a local currency, this limits imports, boosting local outputs and the purchase of local goods. Locally produced goods and services are made attractive to foreigners after devaluation sufficiently increases exports. This brings the balance of trade into balance or even into surplus.

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