TRIPOLI, May 20 (Xinhua) -- For the first time in nearly 13 years, Libya is allowing commercial banks to distribute U.S. dollars in cash directly to citizens, a shift that reflects both improved oil revenues and the depth of the country's currency crisis.
Libyan economists say the move may ease pressure in the short term but will not solve Libya's deeper economic problems.
The economists say years of heavy government spending flooded the economy with Libyan dinars, while dollars remained scarce. Currency traders and speculators absorbed much of the foreign currency released by the central bank, driving up black-market exchange rates and weakening the dinar.
"Uncontrolled public spending over the past two years caused Libyan dinars to flood the market, allowing currency traders and speculators to absorb every dollar the central bank released," economist Mokhtar Al-Jadeed said.
The imbalance widened the gap between the official exchange rate and the black-market rate, fueling inflation and reducing purchasing power for ordinary Libyans.
"This is no longer just an economic figure. It has become a daily struggle for citizens," said Fawzi Dadoush, an economic and banking analyst.
Under the new policy, the government aims to weaken the black market by channeling dollars through official banks while also pulling excess dinars out of circulation. Al-Jadeed said that for every 1 billion dollars released by the central bank, more than 6 billion dinars could be withdrawn from the market.
Higher oil revenues have made the policy possible, giving the central bank enough foreign currency reserves to support the move, economists said.
The measure also reflects broader efforts to restore confidence in Libya's financial system. Dadoush said the central bank's engagement with international financial institutions and attempts to secure support from the International Monetary Fund signal renewed confidence in the banking sector.
Still, economists warned that the policy faces a major risk: citizens could buy dollars from banks and resell them on the black market for quick profits, especially amid financial hardship.
"Large volumes of dollars could flow into the black market, where citizens might sell their allocations to speculators at below-market rates," Dadoush said.
Mohammed Al-Barghouthi, a professor of political economy, said the policy would only work if banks distribute dollars consistently and fairly and regulators crack down on black-market currency trading.
Economists broadly agree that the dollar distribution policy is only a temporary measure. The dinar continues to lose value, and prices remain high.
Dadoush said long-term reforms would require a unified monetary policy, tighter controls on speculation, greater transparency in oil revenues, and a narrower gap between official and black-market exchange rates. He also called for reducing wasteful government spending, restructuring subsidies, diversifying the economy beyond oil, and fighting corruption.
"Fixing exchange rate instability cannot be achieved solely by injecting dollars," Al-Barghouthi said. "It requires building sustainable economic and financial stability."
