Harsha in Dubai for talks on international financial centre in Sri Lanka ECONOMYNEXT – Sri Lanka’s Deputy Minister of Policy Planning and Economic Development is in Dubai for talks on taking forward a planned Colombo International Financial Centre (CIFC) initiative.
De Silva said in a twtter.com post that he was having meeting with officials in Dubai who helped built the Dubai International Finance Centre and similar initiatives elsewhere.
Sri Lanka is planning to set up financial centre within the proposed Port City where Prime Minister Ranil Wickremesinghe said special financial laws will apply.
Dubai and Hong Kong has similar laws.
Unlike Dubai and Hong Kong which have stable currencies, Sri Lanka has a high inflation central bank with multiple objectives which prints large volumes of money to suppress interest rates, generates currency depreciation, inflation and capital flight though frequent balance of payments crises
Hong Kong has an actual hard peg (currency board) where money printing is prohibited and Dubai has a firm peg which mimics US interest rates to keep the currency stable.
On Thursday UAE’s central bank raised its policy rate by 25 basis points to 1.50 percent after the Fed hiked US rates by 25 basis points.
Dubai is a service hub whose origins date back the ruling Al Maktoum family settling along the banks of a salt water canal that is known as Dubai Creek, gradually becoming a free trade hub.
The Creek was first dredged in 1961 when Sri Lanka expropriated foreign oil firms and built Ceylon Petroleum Corporation, while Singapore welcomed foreign oil giants. The discovery of oil either led to properity, like in Dubai, or war and destruction in the Middle East.
In 1971, Dubai became independent after British withdrew from the so-called Trucial States which were British protectorates from 1820.
The Dubai Creek was dredged again in the 1970s when Sri Lanka expropriated more foreign firms and people’s land and closed its economy as the Bretton Woods soft peg system collapsed amid high inflation.
Port Rashid opened in 1972. Dubai has a number of profitable firms connected to its state investment company.
Sri Lanka started giving economic freedoms to people from 1978, relaxing import and exchange controls, setting up free trade zones, after socialist planning generated malnutrition, poverty and 20 percent unemployment. The Jebel Ali Free Zone in Abu Dhabi was set up only in 1985.
After the 1978 liberalizations, Sri Lankans started to go to work in Dubai as housemaids with the central bank continuing to depreciate the currency through contradictory monetary and exchange policies and printing money to finance deficits. (Colombo/June16/2017)