ECONOMYNEXT – Resident Sri Lankans who earn dollar salaries and deposited them in forex accounts in the past are calling banks to protest against conversion of their earnings in to rupees against their wishes, multiple customers said.
Customers were warned of forced conversion of forex after the central bank issued a gazette ordering merchandise and service exporters to convert their dollars.
Merchandise exporters were allowed to invest 10 percent of their money in Sri Lanka Development Bonds.
But banks have told individuals, they are force converting every cent of salaries.
“I was told I am deemed to be a services exporter,” one dollar salary earner who protested said. “I was told my entire salary would be converted against my wishes.”
Another customer at a foreign bank who was notified by text message of forced conversion was given the following message when the move was queried.
“Kindly note that any Sri Lankan residing in Sri Lanka receiving any income/remittances in foreign currency will be in scope for the new Gazette and will be required to convert the Foreign currency to LKR,” the customer was told in writing.
“If possible please visit the closest branch for further details.”
Another bank asked a customer more time to clarify from the central bank after a protest.
Yet another customer was told as follows.
“We have asked the authorities. They gave us a Q and A without directly giving us an answer.”
Existing deposits, earned before October are allowed to be kept, customers were told by several banks.
Another customer said he was planning legal action against banks as there was a contractual relationship between banks and customers, which he felt was violated when banks took actions against his wishes.
The central bank in December said 10 rupee extra would be given to person who bring dollars through conventional channels. Resident persons so far had not told attempted to re-route dollars much.
Sri Lanka is facing forex shortages due to excess money printed to enforce low rates and sterilize interventions under a non-credible peg regime run by a Latin America style central bank set up in 1950.
Foreign exchange troubles and depreciation has become common after central banks were nationalized and they acquired virtually unlimited powers to oppress and monetarily expropriate the general public through depreciation and exchange controls after World War II.
Post depression central bankers go unpunished, partly because economists that were spewed out of Anglo-American universities defend their actions and perpetuate policy errors, critics say.
Under Developed Measures
Mandatory conversions after the credibility of a peg had been lost is a cascading policy error which tends to reduce dollar inflows, analysts had warned.
In 1966 when Keynesianism was riding high, Sterling crises were brewing and the US dollar was heading for collapse and Sri Lanka was coming under increasing controls and multiple exchange rates, B R Shenoy, a rare classical economist wrote a policy document for the Ceylon government.
“As is now clearly seen, diversion of foreign exchange from the official to the free market, take plac through under-invoicing exports, over invoicing imports, smuggling out import gods, Ceylon gems and like items, and by routing in to the free market tourist funds of visitors to Ceylon,” Shenoy explained.
“To battle against these movements of foreign exchange, when the price parities are so enormous, is like trying to control the rush of flood waters down the river beds, though such attempts by sincere but vain administrators are common enough sights in many under-developed parts of the world; and the results of these misguided efforts, as experience has already demonstrated is disastrous – not beneficial – to the Balance of Payments position.”
The public eventually pay the price for the policy errors of soft-pegged central banks.
Politicians have legislative power to curtail the discretionary independence of central banks but do not usually take action and also pay a price at elections as monetary instability, the inevitable fallout of ‘stimulus’ hit the electorate in the form inflation and currency depreciation.
Legislators have instead through various laws including legal tender laws strengthened the powers of central banks through banking, monetary and exchange control laws.
The curtailment of the ability to save in dollars (a phenomenon called deposit dollarization) is a tightening of domestic legal tender laws involving the coercion of persons within a jurisdiction into a currency monopoly.(Colombo/Dec08/2021)