Libya Table of Contents
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
Libya Table of Contents