The risk of economic chaos caused by billions of dollars worth of rival banknotes starting to circulate in Libya may fatally undermine thenew unity government in Tripoli, senior European diplomats fear.

A political battle between the UN-recognised Tripoli government led by Fayez Sarraj and the Tobruk-based parliament loyal to General Khalifa Haftar in the east has led to parallel splits in the country's financial institutions, with two central banks threatening to circulate rival Libyan dinar banknotes in the country.

De La Rue, the Basingstoke-based currency printer and a long-term supplier of notes to the Libyan government in Tripoli, sent 70m dinars, worth about $50m, to the country last month and is in the process of delivering a further 1bn dinars before and during Ramadan.

A rival bank governor in the east, Ali Salim al-Hibri, once recognised as the bank governor by the IMF, claims to have printed 4bn dinars worth of banknotes with the help of the Russian state.

The two currencies would have different serial numbers, security details and watermarks, diplomats say. The danger is two central banks flooding the country with conflicting currencies that are not interchangeable in banks. They are also likely to worsen inflation. Food inflation has reached 14% a year.

The Wall Street Journal has reported that the central bank in the east holds nearly $185m in gold and silver coins in its British-made vault, but is unable to access it because the code is retained by the Tripoli central bank.

The conflict over the banknotes is liable to worsen the country's longstanding banking liquidity crisis, caused by a reluctance of Libyans to deposit their cash in banks. The shortage of cash in banks has led to long queues and strict limits on the amount than can be withdrawn.

To read the complete article, see:
Battle of the banknotes as rival currencies are set to be issued in Libya (www.theguardian.com/world/2016/may/20/battle-of-the-banknotes-rival-currencies-libya)