Analysis of the dual exchange rate reality and its implications for monetary stability (The parallel market for the Libyan dinar as a case study)

Abstract

The purpose of this research is to analyze the dual exchange rate system in Libya by examining the interaction between the official exchange rate of the Libyan Dinar and the exchange rate in the parallel market, with particular reference to monetary stability.

The importance of this research is in shedding light on one of the most significant challenges facing monetary policies in rentier economies, where structural distortions in money and financial markets are widespread due to the use of multiple exchange rates.

The research relies on the descriptive-analytical method, with reference to statistical data and official reports, to clarify the reasons for the development of the parallel market, which include the scarcity of foreign currency, the low production capacity of local markets, and their high reliance on imports.

The research also discusses the economic effects of this policy, such as the high levels of inflation, the erosion of confidence in the local currency, price differences, and speculation, which affect the effectiveness of monetary policies.

The research concluded that the continuation of the dual exchange rate system would undermine the role of the central bank in maintaining monetary stability, leading to the instability of the national economy.

The research recommended the necessity to unify the exchange rate, increase transparency in managing foreign exchange, and implement comprehensive economic reforms to support local production instead of relying on the parallel market.