Banks are already accepting the fifty dinar bill Libya’s central bank has started withdrawing old currency in an apparent attempt to restore liquidity into the country’s banking system after it found that the vast majority of funds are being kept outside banks.
“One of the biggest implications in the economy is the increase of the percentage of money in the market outside the banks which is in excess of 15 billion dinars ($12 billion) or 96 per cent of available money,” Saddeq Omar Elkaber, governor of the central bank told reporters on Friday.
“The bank has started printing a new Libyan currency to replace exist notes,” he added.
ElKaber said that the central bank has set a timeline for withdrawing the old currency starting with the fifty dinar note, the highest value banknote.
“The bank is asking the Libyan banks to accept or facilitate the handover by accepting the fifty dinar banknotes,” he said.
This measure is an indication that the Central Bank wants to return confidence to Libya’s banking system, which suffered severely during the civil war that ended ex-leader Muammar Qaddafi’s 42-year rule.The bank’s deputy governor, Ali Mohammed Salem, told Reuters last month that the central bank’s major concern was to restore liquidity in the Libyan banking system, which was depleted of its dinar reserves when Qaddafi’s entourage seized 3-4 billion dinars ($2.4-$3.2 billion) from the central bank. They also seized 2.3 billion dinars worth of gold, he said.
The problem was made worse when people rushed to the banks during the war, withdrawing 7 billion dinars, Salem said.
Incidentally, this meant Libya’s large cash reserves kept the dinar largely stable last year.
Salem said the central bank was working on injecting cash into local banks by printing 6 billion dinars, adding that the first batch of 300 million dinars was delivered on Dec. 24.
Banks are already accepting the fifty dinar bill - which some Libyans refuse to use as it has an image of Qaddafi printed on it - and the last date for handing in the bill is March 15th 2012.
After that date Libyan banks have a week to deposit these bills into their central bank accounts.
Govenor ElKaber said other notes will be withdrawn after March.