Libya's currency withdrawal set to impact parallel market, analyst warns

Saber Al-Wahsh
The Central Bank of Libya's recent decision to withdraw certain currency denominations from circulation is anticipated to affect the parallel exchange market and liquidity conditions, according to economic analyst Saber Al-Wahsh .
Al-Wahsh explained that the withdrawal forms part of broader efforts by the Central Bank to rectify economic imbalances and institutional challenges that have persisted due to years of division within the financial system.
The analyst highlighted concerns that holders of cash circulating outside the formal banking sector—often linked to unofficial or illicit activities—may respond by converting withdrawn banknotes into foreign currencies. 'Given the significant volume targeted and the limited timeframe for withdrawal, this is likely to increase demand for foreign currency in the parallel market,' he said.
Supporting this outlook, Al-Wahsh referenced data from a similar withdrawal of the fifty-dinar note in early 2025. Following that move, foreign currency usage for personal purposes rose by 26% in 2023 compared to the previous year and surged by 63% in the first five months of 2025 relative to the same period in 2024. He attributed much of this increase to holders converting withdrawn notes into foreign currencies, thereby intensifying demand in the informal exchange market.
To counterbalance potential market pressures, Al-Wahsh recommended synchronising the current currency withdrawal with the disbursement of the second tranche of personal foreign currency allocations. 'While this approach may exert additional pressure on the country's foreign currency reserves, maintaining monetary stability should remain the primary objective at this stage,' he added.
On the topic of liquidity, the analyst assessed that any disruption is expected to be limited. He noted that the Central Bank has taken proactive measures to inject newly printed currency into circulation alongside the withdrawal process to ensure sufficient cash availability.
As Libya navigates these financial adjustments, the Central Bank's strategy reflects an attempt to stabilise the local currency and restore confidence in the monetary system. The views expressed in Op-Ed pieces are those of the author and do not purport to reflect the opinions or views of Libyan Express.
How to submit an Op-Ed: Libyan Express accepts opinion articles on a wide range of topics. Submissions may be sent to oped@libyanexpress.com. Please include 'Op-Ed' in the subject line.

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