The issue of foreign exchange and the parallel market has returned to the forefront of Libya's economic debate, as citizens face mounting pressures related to prices, liquidity, and access to foreign currency. The country's economic challenges are compounded by the fact that its monetary policy faces significant hurdles, including political instability and weak public finances.
According to financial expert Sulaiman Al-Shahomi, the key to addressing the parallel market lies in removing the economic incentives that drive it. He argues that the current administrative measures alone will not address the underlying reasons for the parallel market's persistence and profitability. Al-Shahomi suggests that the policy should focus on reducing the gap between the official and parallel exchange rates.
The Central Bank of Libya has acknowledged that monetary policy faces challenges related to political instability, weak public finances, and the risks of excessive public spending. In 2026, the bank introduced measures aimed at supporting market stability, containing the parallel market, and enhancing the effectiveness of monetary policy. These measures include adjusting the Dinar's value, with a 14.7% reduction in January 2026.
Al-Shahomi proposes that the monetary policy should aim to reduce the gap between the official and parallel exchange rates to a level that makes arbitrage economically unviable. He suggests a gradual move towards a rate that reflects supply and demand conditions, with regular and transparent auctions allowing banks to participate under uniform conditions. This approach could help reduce the cost of imports and stabilize prices.
The issue of foreign exchange allocation is critical for Libyan citizens, as it directly affects their access to essential goods and services. Al-Shahomi's proposal also emphasizes the need to protect low-income households from the effects of monetary reform through direct support, rather than relying on a subsidized exchange rate. This approach could help mitigate the impact of price increases on vulnerable populations.
Al-Shahomi also stresses the importance of enhancing transparency in foreign exchange allocation, publishing regular data on sales of foreign currency, and improving the returns on deposits. He argues that restoring confidence in the banking system is crucial for the success of monetary policy reform. The Central Bank of Libya has already announced its commitment to coordinating monetary and fiscal policies to stabilize the economy.
Ultimately, Al-Shahomi's vision for monetary policy reform in Libya emphasizes the need to address the root causes of the parallel market, rather than just its symptoms. His proposals aim to promote economic stability, reduce corruption, and increase transparency in foreign exchange allocation. By implementing these reforms, Libya's authorities may be able to reduce the gap between the official and parallel exchange rates and promote a more stable economic environment.
Key points
- The Libyan government and the Central Bank of Libya must work together to address the root causes of the parallel market.
- Enhancing transparency and restoring confidence in the banking system are crucial for the success of monetary policy reform.
- Protecting low-income households from the effects of monetary reform is essential for promoting social stability.
