Thursday, June 2, 2016

What happens when a central bank splits in two?












  1. Seems to me, the first question to ask is: which central bank money will commercial banks use to clear their payments and promise to convert their liabilities into? That will determine whose notes will be in demand. Do banks currently settle with both CBs? Can they or will they be forced to choose? Can they change sides?

    1. The most recent article gives some details on how banks are dealing with the new notes:

      "The central bank offices in Tripoli in the west and Bayda in the east both say they are acting neutrally to relieve the crisis, and that their new banknotes will be distributed across the country.

      "The Bayda office has already delivered some of the 200 million dinars that arrived on Tuesday to eight commercial banks in the east, as well as to southern regions, Jehani said. It is expecting to deliver to western Libya next week and is in "full cooperation" with the central bank's issuing department in Tripoli.

      "The central bank in the capital, which has ordered 1 billion dinars printed in Britain, said a consignment of 112 million dinars that landed on Wednesday would be delivered to "banks in all Libyan cities, without exception".

  2. I wonder if there is potential for fiscal backing for the Bayda dinars, aside from the contents of the mysterious vault. The regime could require taxes to be paid in this money, and then use this legal status of the currency to collect seigniorage.

    1. Yep. Also, my understanding is that the eastern regime has been trying to secure oil revenues, which would provide some backing to a Bayda dinar.

  3. It's been quite some time and I only seem to be finding articles about needing to open the vault. Have they gotten the vault opened yet?