April 28, 2011 / 6:54 PM / in 7 years

Conflict hits dinar, raises prices in Libyan capital

* Libyan dinar stabilised at about 1.85 to the dollar

* Prices of some imported goods up, shoppers say

By Lin Noueihed

TRIPOLI, April 28 (Reuters) - In Tripoli’s gold souqs and on its black market, a dollar buys you more dinars now than it did before the war and in the supermarkets prices are beginning to creep up as sanctions and currency woes bite.

Banks still exchange money at the official rate of 1.2 to the dollar, but the black market rate hovers between 1.8 and 1.9 dinars having reached over 3 dinars when short-lived protests shook the capital in February. “People wanted to buy dollars at the start and they bought a lot in the first week,” said one jeweller who changes money on the side.

“The dollar was at 3.00 dinars or more at the beginning when things were really confused. Now it is at 1.85. It has stabilised a little. There’s no fear now.”

Demonstrations have fizzled out in Tripoli since the start of the rebellion against Muammar Gaddafi in February saw rebels take over the country’s second-largest city, Benghazi.

Gaddafi’s forces have since restored their grip over key parts of western Libya. The United Nations has imposed sanctions banning the sale of military goods to Libya, prohibited dealings with some state companies and imposed a no-fly zone.

Gaddafi and his entourage have had their assets frozen abroad and British authorities seized a cargo of Libyan currency in March from a ship that returned to UK waters after it was unable to dock in Tripoli due to security concerns.

British Prime Minister David Cameron said early last month that Britain had blocked a separate shipment of 900 million pounds in banknotes destined for Libya.

The result has been a shortage in Libyan banknotes and the central bank has been forced to bring back the large-sized 10-dinar banknote that had been taken out of circulation.

PRICES RISING

But queues that stretched outside banks and cash machines in Tripoli in early March have disappeared.

Tripoli residents say, however, that they are only allowed to withdraw 1,000 dinars a month in cash from their bank accounts, in an apparent bid to avoid a run on the banks, should jittery residents try to take their money and hide it at home.

Years of sanctions over the 1988 Lockerbie bombing kept Libya’s financial sector isolated from the international system during much of the 1990s. Confidence in the banking sector was low and Libya’s had largely remained a cash society.

However, confidence in banks had risen in recent years, as sanctions were lifted in 2003. Libya, a major oil producer, began to invest at home and abroad.

Tripoli money-changers said on Thursday that foreigners looking to flee early on had dashed to get rid of their dinars but that ordinary Libyans were no longer rushing.

“In the end, you are living inside the country, so you don’t need dollars,” said jeweller and money changer Mohammed Salim.

Libya imports most of its food and consumer goods and the currency depreciation has raised the price of some items shipped in from abroad and paid for in dollars or euros.

In Al Mahari Centre, a large supermarket frequented by wealthier Libyans, shoppers said the price of basic goods like rice had not risen as they were subsidised by the state. Shops appeared well stocked, but some imported items were pricier.

With government minders looking on, some shoppers declined to speak and others seemed reluctant to complain about prices.

“This was 4.5 dinars a week ago and today it is 5 dinars,” said one man, pointing to a European brand of cereal, four boxes of which he had packed into his basket.

“Some prices are being raised by traders. Vegetables are the same though, thank God.” (Editing by Matthew Tostevin/Maria Golovnina)

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