Rebel Monetary Governance

• In Event: Graduate Student Research Lightning Round: Social Movements, Conflict, Coalitions

Abstract

When and why do rebel groups build more complex financial institutions like central banks or treasuries? Generally, rebels provide various social services, protection and policing, and judicial governance to their constituents. On the contrary, and aside from what we already know about rebel taxation and resource exploitation, little is known about if and how rebels govern monetarily or fiscally. In October 2014, rebels in Eastern Libya disconnected the regional central bank branches in Benghazi and Bayda from the Libyan automated clearing system (RTGS) and began building their own central banking system. Using some of the pre-existing infrastructure, the Eastern Central Bank began rivaling the official Central Bank of Libya in issuing counterfeit currency, bonds, letters of credit, and determining new interest rates. While this move enabled a great influx of revenue for the rebels, it led to a deterioration of the economy and the Libyan peace process. A few months earlier, ISIS insurgents in Iraq captured Mosul where they would govern for the next years. There, ISIS fighters robbed the regional branch of the Bank of Iraq and abandoned it. Unlike the Libyan rebels, the Islamic State did not attempt to build its own central banking system, despite having access to similar, established infrastructure. Both rebel groups engaged in other forms of governance, yet it is puzzling that only the Libyan rebels attempted some form of state-like financial governance when both had the opportunity to do so.

In the 21st Century, the case of the Eastern Central Bank in Libya appears unique or incidental – not part of a larger trend in rebel governance. Yet, historical corollaries exist. For example, as taxation and borrowing proved insufficient to fund its war effort, the American Confederacy began printing money and issuing government securities. Causing hyperinflation, the Confederate government tried to pass monetary legislation to contract the money supply – to no avail. This ultimately contributed to its demise. In this paper, I investigate the presence and absence of rebel financial governance during cases of civil war and de facto states. Building an original dataset cataloguing these cases, I test two competing explanations: first, whether such institutions are tools of war finance, or, alternatively, if they exist to promote civilian-rebel relations or foreign sponsorship, as the rebel governance literature suggests. Crucially, these explanations hinge on how sovereignty is defined, the stage of the war or conflict, and whether rebel groups evolve into sovereign or de facto states, if at all. The conditionality of rebel financial intentions and institutions across time and place inform broad trends in governance that are yet unexplored in the literature. I argue that a group’s intentions to extract resources, bolster legitimacy, and respond to the needs of economic elites are main drivers of financial governance institutional development.

Author

• Annjulie Vester, UC Santa Barbara