Central bank of Libya

As discussed previously, the CBL commenced its operations on April 1, 1956, under the name the National Bank of Libya, which replaced the Libyan Currency Committee which was established in 1951. It was then renamed the CBL to perform its main functions as the central bank.

Prior to the issuance the Libyan Banking Law No. 4 for the year 1963, the functions of the CBL were limited to keeping sterling assets against the issue of local currency, hence, it had no role in controlling money supply or credit, or in supervising banks (CBL, 2006). By issuance of the Libyan Banking Law No. 1, 2005, its role has improved more effectively, and this law gave the CBL its independence and the authority to manage and implement banking and monetary policy, as well as supervising and monitoring the ban ing system’s performance, and enhancing confidence therein.

At present, the CBL is fully (100%) under state ownership and represents the monetary authority in Libya, and it has come under the sponsorship of the Secretariat of the General People’s Congress since the issuing of the Libyan Ban ing Law No. 1 of 2005. The main objectives of CBL under the Banking Law 2005 are to maintain monetary stability in the country, and to promote the sustained growth of the Libyan economy in accordance with the government’s general economic policy.

According to Article 18, Libyan Banking Law No. 1, 2005, the governor of the CBL shall be the executive chief of the CBL, and shall be responsible for managing the CBL

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and discharging its normal affairs under the board of directors’ supervision. The CBL has established three branches located in Benghazi, Sebha, and Sirte, as well as headquarters in Tripoli, which has made its services more accessible to public departments as well as commercial bank branches far from the headquarters (CBL, 2006).

4.4.3.1.1 Functions of the central bank of Libya

The Libyan Banking Law No. 46, 2012, Article 5 specified the core functions and responsibilities of the CBL, which include the following:

1. Issue the Libyan currency and maintain its stability within Libya and abroad. 2. Manage its reserves and the government’s reserves of gold and foreign exchange. 3. Regulate monetary policy and supervise currency conversion transactions within

Libya and abroad.

4. Regulate credit and banking policy and supervise its implementation within the framewor of the government’s general policy.

5. Achieve the goals of economic policy in terms of stabilizing the general level of prices and maintaining the soundness of the banking system.

6. Manage the liquidity of the national economy. 7. Regulate and supervise the foreign exchange market.

8. Provide advice to the government on matters related to the general economic policy. In addition, in carrying out the above-mentioned obligations the CBL may (Article 5/2):

1. Exert control on the amount, type, and period of credit available to ensure that the actual needs of economic factors involved in production and services will be met. 2. Take appropriate measures to deal with economic and financial troubles, whether

domestic or international.

3. Monitor and supervise banks, companies and exchange offices, and financial leasing companies to ensure the soundness of their financial position, monitor their performance, and protect the rights of their shareholders, depositors and customers. 4. Supervise the national system of payments, including clearing operations between

banks subject to the provisions of this law, and develop regulations to govern the system.

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5. Any other measures required to implement the monetary, credit, and banking policies and enhance the supervision of banking credit.

The following is a review of the most important functions undertaken by CBL since it was founded.

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Issuing and regulating the Libyan currency

CBL is the sole issuer of the Libyan currency; it supplies market needs for banknotes and coins and keeps a sufficient inventory of these banknotes and coins. As was stated in the rticle No. 30, Ban ing Law No 46, 2012, “the CBL alone shall have the prerogative to issue currency in Libya. In the application of the provisions of this section, currency shall mean ban notes and coins”. It is also responsible for eliminating and withdrawing old currency from circulation which is damaged or no longer valid.

According to Libyan Banking Law, 2012, Article 31, the unit of national currency is Libyan Dinar (LD), which is divided into (1000 Dirhams); the CBL’s board of directors shall set the par value of the LD in SDRs or any convertible foreign currency or according to supply and demand in the foreign exchange. The LD was introduced in 1971 by the CBL as a replacement of the Jonayh.

One LD equalled $3.04 (US dollars) and continued to be strong until the 1986 (CBL, 2006). Later the value of LD started to gradually reduce. Currently it is valued at less than a dollar (approximately USD 0.80). Since January 2002, the LD has been pegged to Special Drawing Rights (SDRs) by fixed rate. In June 2003, the exchange rate was devalued by 15 per cent to one LD equals SDRs 0.5175 (IMF, 2005).

It is worth mentioning that before CBL commenced its activity in 1956 the currency notes traded at the time were those issued by the LCC, which was established in February 1952, and began issuing the Libyan currency in 24 March, 1952 (CBL, 2006).

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Manage and develop the government’s gold and foreign exchange reserves According to Article 6 of Libyan Banking Law No. 46, 2012, the CBL is the only body responsible for managing and developing the government’s gold and foreign exchange reserves. In addition, it is responsible for selecting appropriate investment instruments and determining the amounts to be invested in each currency, taking into account the

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developments in foreign exchange and money and capital markets to certify safety and profitability.

The CBL licenses commercial banks to hold foreign currencies in accordance with guidelines of the foreign exchange regulations issued from time to time to take into account the country’s general economic interests.

Foreign exchange transactions shall be executed through banks and entities that are licensed for this purpose by the Central Bank of Libya. Each such bank and entity must prepare a periodic statement of the foreign exchange that it sells or buys, the foreign exchange transfers that it executes and receives, foreign exchange that it receives for transactions involving the export of goods and services, and foreign exchange balances at its disposal. It must transfer all such foreign exchange to the Central Bank of Libya at the times stipulated by the Central Bank of Libya (Article 47, Banking Law No. 46, 2012).

Furthermore, Article 43 indicated that commercial banks operating in Libya may open accounts in foreign exchange for individuals and legal entities that are fed by:

a. Deposits in foreign exchange. b. Sums transferred from abroad.

c. Sums transferred from another domestic account in foreign exchange.

d. The foreign currency equivalent that the banks receives for its purchase of foreign banknotes, or other means of payment in foreign exchange credited to the account.

e. Banking interest on the aforesaid accounts. f. Any other legal channel.

Acting as a banker and financial agent to the state and public entities

The CBL acts as a banker and financial agent to the Libyan state and public entities. Article 9/1 of the Libyan Banking Law No 46, 2012 emphasises that the CBL have to engage in banking activities relating to public administrative units required to deposit their balances in it, and it must provide banking services to those units. Further, the CBL may accept deposits from, and provide banking services to, public entities (Article 9/2). The CBL may also provide temporary advances to the government to cover any

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temporary deficit in general budget revenues based on terms agreed between the CBL and the Ministry of Treasury (Article 11/2).

Accordingly, the CBL, under the Libyan Banking Law, is charged with maintaining the government and public institutions’ revenues and expenditures accounts. It also makes payments, transfers and collects funds locally and abroad, as well as managing letters of credit transactions on behalf of its customers, and provides various banking services to public institutions. In addition, it participates in representing the government in contracts, negotiations, and operations conducted with foreign governments and international organisations regarding monetary, financial, or commercial matters.

Acting as economic and financial consultant to the state

The role of the Central Bank of Libya (CBL) in promoting economic activity in the country is not limited to its role in monetary stability and managing the banking environment. It also provides advice to the government on various aspects of economic life, such as the submission of proposals and recommendations to make decisions and measures which relate to economic affairs and finance, through studies and reports to the competent authorities about the economic developments in the country. Moreover, it offers advice on questions or concerns in various topics and economic issues.

 Acting as a banker to the commercial banks

The CBL maintains the legal cash reserves required from commercial banks as a percentage of their customers deposits. According to Article 57 of the Banking Law No 46, 2012, all commercial banks operating in Libya must maintain, with the CBL and without interest, the required monetary reserve corresponding to their deposit liabilities. These reserves must be paid in the Libyan dinar unless the board of directors of the CBL permits the provision of some such reserves in the form of other assets. Commercial banks have to maintain mandatory cash reserves of 15 % at the CBL by the demand deposits, and 7.5% on savings and time deposits. In addition, it accepts time deposits of these banks for the benefits, and the CBL is a last resort for the commercial banks and can give them unusual loans in the face of any exceptional circumstances it assumes threaten the stability of the monetary system and banking in Libya.

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 Inspecting, supervision and regulation of banking activities

In order to ensure that banks comply with the CBL rules, regulations, policies, and directions, the CBL checks and analyses the financial positions of all banks and their branches operating in Libya, in terms of legal liquidity and the safety of their financial position, and confirms that they maintain the legal required ratios such as cash reserves and legal liquidity. It also examines the truth of figures and information which they supply to the CBL and their commitment to following the directives that issued by CBL, such as that concerning the size and direction of credit granted by the banking sector. Under Banking Law No 46, 2012, Article 55, the following shall be subject to the supervision of the CBL:

1. Commercial banks and Islamic banks. 2. Specialised banks.

3. Banks that operate abroad whose head office is in Libya. 4. The branches of foreign banks in Libya.

5. The representation offices of foreign banks in Libya.

6. Companies and exchange offices, financial leasing companies, and investment funds.

According to Article 61 of the Banking Law No. 46, 2012, the CBL has a right to inspect at any time the ban s’ boo s, records, debit accounts, and their electronic systems as well as the files pertaining thereto. This inspection should be done at the head office of the bank concerned by CBL inspectors assigned to carry out this task. In addition, the banks must provide the inspectors with all of the data and facilities that they require to carry out their work. Furthermore, all banks must comply with the rules and regulations established by the CBL to regulate clearing operations and issues relating to National Payment System (NPS) and they must also implement the decrees, circulars, and instructions issued by the CBL (Article 64).

In document An evaluation of voluntary disclosure in the annual reports of commercial banks: Empirical evidence from Libya (Page 136-141)