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WEEKLY NEWSLETTER
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Libya
Index
As a result of its World War II association, Libya became a
member of the British sterling bloc when independence was
established in 1951. Shortly after independence, a national
currency was created: the Libyan pound, as it was then known,
divided into 100 piastres (of 10 millièmes each), having a par
value of US$2.80. The currency unit remained tied to sterling until
the sterling devaluation of November 1967, when the Libyan pound
failed to devalue and the direct link with sterling was terminated.
Libya continued as a member of the sterling bloc, however, until it
was expelled by the British in the aftermath of the Libyan
nationalization of British Petroleum's assets in Libya in December
1971
(see Hydrocarbons and Mining
, this ch.). Effective September
1, 1971, the currency unit was changed from the Libyan pound to the
Libyan dinar (LD), divided into 1,000 dirhams, with no change in
its par value. In the late 1980s, the currency was still sometimes
referred to as the pound, and merchants sometimes quoted prices in
piastres. The new currency comes in banknotes of 250 and 500
dirhams and 1, 5, and 10 dinars, as well as subsidiary coins of 1,
5, 10, 20, 50, and 100 dirhams.
In the general revaluation of gold, which also took place in
December 1971, Libya retained its existing parity with gold. As a
consequence, the dollar value of the dinar rose from US$2.80 to
US$3.04, where it was kept until 1974 when it moved to LD1 equal to
US$3.3778. The dinar was maintained at this rate until March 1986,
when the government switched from a fixed dollar rate to a floating
rate linked to the SDR. This move resulted in a 10-percent decline
in the value of the dinar.
During the years immediately after independence, an
international commission acted in lieu of a bank of issue, and the
several currencies serving as legal tender in various parts of the
country were replaced by the new Libyan currency. Pursuant to
legislation of 1955 (amended in 1958), the National Bank of Libya
was established in 1956 to replace the commission and to perform
some of the functions of a central bank under the aegis of the
Ministry of Finance. The commercial banks for the most part were
branches of major international banking institutions. In the main,
they were engaged in providing short-term international and
domestic commercial credit.
In 1963 the Central Bank of Libya replaced the National Bank of
Libya. The government gave the new bank sole right of currency
issue and made it responsible for maintaining monetary stability
and the external value of the Libyan currency and for regulating
currency and credit. The bank could also make advances to the
central government up to 10 percent of estimated current revenues.
The commercial banks were required to maintain liquidity ratios and
reserves in the Central Bank against deposits as prescribed by the
Central Bank. Until 1970 the Central Bank also carried out
commercial operations, but in that year the National Commercial
Bank was founded to take over the commercial division of the
Central Bank and the operations of two small foreign banks.
The military government that took power in 1969 viewed the
banking sector as a primary object of its general program of
Libyanization. In November 1969, the new government required that
all banks in the country be Libyan controlled, and it bought out
the 51-percent control of the commercial banks that had not already
converted to Libyan control. In July 1970, the government took 100-
percent control of four of the major banks with foreign minority
ownership. In December 1970, the government purchased outright all
banks that still had some foreign minority participation and, by a
process of merging, reduced the number of commercial banks to five.
Libyan citizens were permitted to purchase minority interests in
the banks.
In addition to the National Commercial Bank, commercial banks
in operation in 1987 included the Jamahiriya Bank, known as the
Jumhuriya Bank until its present name was adopted in 1977. It
operated nearly thirty branches throughout the country. Other
commercial banks included the Sahara Bank, formerly the Banco di
Sicilia, and the Umma Bank, the successor to the Banco di Roma. The
Wahda Bank was formed in 1970 from the merger of five other banks.
In addition to the state-owned commercial banks, Libya was home
to the National Agricultural Bank, the Industrial and Real Estate
Bank of Libya, LAFICO, and LAFB. The agricultural bank was a
specialized institution established in 1957 to provide interestfree production loans to farmers. It also made medium-term loans
for up to five years for machinery and materials and long-term
loans for up to fifteen years for land reclamation projects,
irrigation, and agricultural construction. The agricultural bank
purchased produce from farmers at a guaranteed profit and sold them
supplies at subsidized prices. The bank has a good record; in the
past, about 90 percent of all loans have been repaid.
The Industrial and Real Estate Bank of Libya was both a
development bank, providing industrial credits, and a home finance
agency, making housing loans. Most of its loans were for home
purchases. LAFICO was created in 1972 as a joint effort of the five
commercial banks, the insurance industry, and other government
agencies to promote housing, industry, commerce, and tourism. It
also made investments outside Libya. In early 1972, the government
established LAFB as a wholly owned subsidiary of the Central Bank,
but not subject to the Central Bank's legislation, regulations, or
exchange control. It engaged in financial and banking operations
outside the country and acted as the foreign agent for the
government and Libyan commercial banks. Its main purposes were to
encourage regional development--particularly of countries friendly
to Libya, to become active in international financial markets, and
to serve as a vehicle for Libyan assistance to other countries. By
1978 LAFB had set up a worldwide chain of eighteen subsidiaries and
affiliates in which it held anywhere from 7 to 51 percent of the
equity. In 1985 LAFB had total worldwide assets of US$2.9 billion.
The insurance industry was also nationalized. In December 1970,
insurance companies were required to have 60-percent government
participation, and in 1971 they were totally taken over and merged
into two companies. Credit has generally been plentiful, although
the Central Bank's credit policy was to support the government's
development effort. This meant that at times, such as in 1977, the
Central Bank limited credit to the private sector and directed it
instead to state entities. This has also been done to halt the
rapid growth in the money supply and the inflationary rate. The
largest percentage of loans made by the banking system has been for
housing and commerce. In 1975 the government declared interest to
be usury and prohibited it, but commissions for services rendered
remained legal, and banks could charge commissions. Such
commissions generally have been kept low on items such as
construction loans. In practice, Libyan banks still charged
interest on loans and paid interest on deposits. In 1985 the prime
lending rate stood at 7.5 percent, while deposit and lending rates
were set at 5.5 and 7.0 percent, respectively.
Data as of 1987
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