An Echelon Media Company
Monday December 6th, 2021
Bonds & Forex

Sri Lanka banks to surrender 12-5-pct of export receipts to central bank

ECONOMYNEXT – Sri Lanka’s banks have been ordered to sell half of mandatorily converted export proceeds to the central bank, financial sector officials said.

Sri Lanka last week ordered exporters to convert 25 percent of export proceeds into rupees and repatriate dollars by 180 days of a shipment.

Banks have been ordered to sell half of the converted dollars (12.5 percent of the total) to the central bank in a new surrender requirement.

The central bank had already ordered banks to surrender 10 percent of converted remittances. Last year Sri Lanka got 7.1 billion US dollars of remittances.

Related

Sri Lanka orders exporters to convert 25-pct of forex earnings

Sri Lanka banks required to sell 10-pct of forex remittances to the central bank

Last year Sri Lanka exported 10.07 billion US dollars of goods. This year 13 billion dollars are expected Central Bank Governor W D Lakshman said earlier in February.

Sri Lanka’s forex reserves had fallen to 4.8 billion US dollars by January and money printing was putting pressure on the island’s soft-peg with the US dollar as domestic credit gradually recovered from a Coronavirus lockdown and printed money ended up in forex markets.

Any dollar bought by a pegged central bank by-passes the forex market, creates more liquidity and adds to loanable reserves of the banking system. (Colombo/Feb20/2021)

Comments (2)

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *

  1. R. S. M says:

    Can anyone explain how money printing causes a decline in the forex reserves in Sri Lanka. Please explain step by step as many students read economynext to gain knowledge in economics. Thanks

    1. Bluetec Diesel says:

      Printing money will create huge amount of local currency, and people will use (borrow) local currency to buy dollar, so central bank has to sell the dollar reserve. In some countries, to protect the forex reserve, the government doesn’t allow people to buy dollar more than certain amount every month, unless you have a proof of invoice to pay in dollar and business license.
      Money printing will stimulate the economy, because it comes with cheap interest rate to borrow, so people borrow money and spend or invest, making economy runs. What you don’t want is people or companies borrow the money to hoard dollar. Central bank is doing the right thing, because exporters are hoarding dollar, betting the local currency to collapse to make huge profit. Under no-IMF strings, current government has been supporting exporters with low taxes, so in return, they have to save the forex too. It’s like a boat, we all sail or sink together. With IMF strings, taxes will be increased, so exporters will be taxed very high, included their dollar-piggy-bank will be taxed too. Since the requirement to convert is only 25%, it is actually very good for the exporters, because they definitely have local costs of more than 25% in the production. Those who don’t agree are borrowing Rupee for local costs and hoarding dollar to make profit.

Comments

Comments (2)

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *

  1. R. S. M says:

    Can anyone explain how money printing causes a decline in the forex reserves in Sri Lanka. Please explain step by step as many students read economynext to gain knowledge in economics. Thanks

    1. Bluetec Diesel says:

      Printing money will create huge amount of local currency, and people will use (borrow) local currency to buy dollar, so central bank has to sell the dollar reserve. In some countries, to protect the forex reserve, the government doesn’t allow people to buy dollar more than certain amount every month, unless you have a proof of invoice to pay in dollar and business license.
      Money printing will stimulate the economy, because it comes with cheap interest rate to borrow, so people borrow money and spend or invest, making economy runs. What you don’t want is people or companies borrow the money to hoard dollar. Central bank is doing the right thing, because exporters are hoarding dollar, betting the local currency to collapse to make huge profit. Under no-IMF strings, current government has been supporting exporters with low taxes, so in return, they have to save the forex too. It’s like a boat, we all sail or sink together. With IMF strings, taxes will be increased, so exporters will be taxed very high, included their dollar-piggy-bank will be taxed too. Since the requirement to convert is only 25%, it is actually very good for the exporters, because they definitely have local costs of more than 25% in the production. Those who don’t agree are borrowing Rupee for local costs and hoarding dollar to make profit.