The role of the Central Bank in achieving financial stability in Libya

Abstract

   The study aimed to identify the extent of the impact of monetary policy in enhancing financial stability in Libya for the period of time (2010-2022), and this was by following the impact of the legal reserve ratio as one of the monetary policy tools on the ability of commercial banks to grant monetary credit, as it is one of the indicators of financial stability. To achieve the study's objectives within its theoretical framework, several previous studies related to financial stability were discussed, along with the most important findings and recommendations from these studies. From the analytical side, the study model was formulated in the form of a simple regression equation between two variables. The first variable is the legal reserve and represents the independent variable, while the dependent variable is the volume of bank credit provided by commercial banks.

   After testing the hypotheses, the study concluded that there is an effect of the size of the legal reserve on the volume of credit granted by commercial banks. It also concluded that the change in the size of the legal reserve is, in fact, a change in the volume of deposits with commercial banks, due to the Central Bank law that unifies and fixes the legal reserve ratio at 20% of the value of deposits. The study recommended that commercial to follow up on expanding the volume of credit from surplus deposits after maintaining the required reserve ratio, which increases the capabilities of the banking system to meet investors' need for funds, as well as increasing individuals' banking awareness towards banks to increase individuals' dealings with banks. as well as re- Considering the legal reserve ratio and making it flexible to change with investors' requirements for credit and the increase in loans granted. Therefore, these measures provide the central bank with the ability to reach financial stability and protect the local economy from financial crises and shocks through the expansion of credit and thus the expansion of investment and finally to increase output. Locally, this improves the country's financial position.