BENGHAZI, Libya: A central bank set up by Libyan rebels has virtually no reserves, but plans to inject dollars into the economy to prop up the Libyan dinar once funds pledged by Western powers arrive, the rebel economy chief said.
The Benghazi-based rebel administration established the bank to rival the one in Tripoli, but the new entity continues to use the same currency issued in the Gadhafi-controlled west and has few monetary tools beyond those of a Finance Ministry.
The rebels have been frantically working to pay salaries for public workers and prevent the economy in the eastern territory it holds from collapsing after an uprising against Moammar Gadhafi began in mid-February.
“We have no reserves, because Gadhafi emptied everything,” said Abdullah Shamia, who was appointed economy chief last week on the rebel National Council’s executive committee that runs day-to-day affairs.
“There are some assets that have to be used as legal cover for our legal tender but this can’t be disposed of. It has to be kept that way to give the Libyan currency its strength.”
The rebels have imposed ceilings on the amount of money that can be withdrawn from banks and set a quota on the purchase of dollars, but face challenges enforcing that as the conflict runs into its third month and shows few signs of ending soon.
“People are hoarding their money now. It’s expected because we’re living in a war situation,” said Shamia, who has been deputizing for Finance and Oil Minister Ali Tarhouni, who is abroad.
“So they don’t want to abide by [the] ceiling … you cannot withdraw more than 1,000 dinars or so. They prefer to have their own money in their houses or in their own safes but we’re encouraging all people to deposit their money.”
A rush for dollars by Libyans fleeing the country or seeking a safe haven weakened the Libyan dinar in the black market to as low as 1.90 or 2.00 to the dollar, but the currency later rebounded to about 1.50-1.60 dinars to the dollar after Western powers pledged cash for the rebels.
Once that money arrives, the central bank hopes to inject enough dollars into the local economy to strengthen the dinar to its pre-uprising level of 1.25 to the dollar, he said.
“We won’t let our currency collapse, we have to make it stronger,” Shamia said. “I will inject as many dollars as possible to the extent it won’t affect our Libyan dinar harmfully.”
Care will also be taken to ensure that the dollars are only diverted to traders and merchants who plan to use the money to import food and essential supplies, he said.
“These dollars, we won’t just be injecting them, but injecting them in a certain way to bring me back … food, medical [supplies], fuel,” he said. “We are taking some measures to make sure that those who come forward for dollars are real merchants, they are not just speculators.”
For now, Shamia says the economy in the rebel-held east is functioning almost normally in essential areas like food and fuel, but could run into trouble in a month or two if the promised funds do not arrive.
“We are living our life business as usual, or almost business as usual. Things are available, people are getting their salaries, you go to shops and they are open,” he said. “If the international community doesn’t facilitate access to our frozen money we may go into crisis, but up to now we are fine.”