Defying critics, Libya's eastern bank prints its own money

BENGHAZI, Libya (AP) - Libya's cash-strapped eastern central bank announced it had printed its own bank notes Friday, overcoming initial opposition from the U.N.-backed western government but sparking concern at the divided country's ability to develop coherent monetary and economic policies.

Distribution of the newly-printed 4 billion dinars ($3 billion) will begin 1 June, according to a statement by the east's central bank, which is based in the city of Bayda.

The notes were printed in Russia and look different from the other dinar notes in circulation. They are signed by Ali al-Habri, the governor of the Bayda-based central bank.

The U.S. embassy on Wednesday said the notes would be "counterfeit" and would "undermine confidence in Libya's currency." It noted a U.N. security resolution that calls on member states to only recognize bodies affiliated with the U.N.-backed Tripoli government.

Since 2014, Libya has been divided between two parliaments and governments with each backed by a loose set of militias and tribes. The eastern government and parliament were formed after the last parliament elections, but the Tripoli parliament refused to hand over power to them.

Following a U.N. brokered a political deal between factions from each camp at the end of last year, the new unity government has tried to consolidate its grip in the capital, Tripoli, but has faced resistance from various political players and armed groups.

The latest crisis emerged after the eastern government received only half the cash it requested from the Tripoli-based Central Bank of Libya, the eastern central bank statement said.

On Thursday, the eastern central bank condemned the U.S. embassy statement and said that it had agreed in a previous meeting, held in Tunisia, with the U.N.-backed premier in Tripoli to print the bank notes, which it described as "needed to contain the crisis." In its statement, the easterm bank said the move was crucial to "preserve economic stability in the current period at least."

The Tripoli-based Central Bank of Libya denied that the measures were agreed on during the meeting, and warned that they would create "divisions for an important sovereign institution."

Having initially rejected the eastern central bank's move, warning that it could spark inflation and a local currency collapse, the U.N.-backed prime minister Fayez Serraj, said in a statement Thursday that, following a meeting, the two sides had found "practical and swift solutions to make use of the bank notes which were printed."

The U.S. embassy statement also expressed concern at attempts by the eastern government to break into Central Bank of Libya facilities, including plans to drill into its safes.

The statement was referring to gold coins kept in a safe in eastern Libya. The Tripoli-based bank has refused to give its eastern rivals the code to open the safe. The eastern central bank is hoping to crack the code to retrieve and sell the gold coins inside, which are printed with the portrait of Libya's former autocratic leader Muammar Gadhafi, an official at the eastern central bank said. He spoke on condition of anonymity because he wasn't authorized to speak to the press.