ECONOMYNEXT – Sri Lanka can build Mannar island into a entertainment filled tourism hotspot which will use dollars as its currency like Macau, newly appointed state minister for tourism Diana Gamage has said.
Macau adds to a long list of dream countries with stable single anchor monetary regimes with currency boards of currency board like systems.
Other such countries that Sri Lanka frequently aspires to become economic hubs like Singapore (modified currency board), Dubai (currency board like system) or Hong Kong (orthodox currency board).
“We can make the Mannar Island like entertainment location like Macau island,” Minister Gamage told after assuming duties.
“Business can be done in dollars. No rupees.”
Macau has a currency board with Hong Kong dollar at 1.03 Macau Pataca and also currency competition where foreign currencies like the US dollar can be used.
In Sri Lanka the central bank and police arrest people who try to protect their savings from depreciation using draconian legal tender laws after printing money to create forex shortages. In 2022 a money laundering law was also deployed against the people.
Sri Lanka has a Latin America style unstable intermediate regime (a reserve collecting peg with liquidity injections to suppress rates) now called a ‘flexible exchange rate’.
A Chinese backed reclaimed area off the capital Colombo called Port City is already dollarized.
Sri Lanka is now facing the worst currency crises in the history of the central bank after two years of money printing to suppress interest rates.
The dual anchor intermediate regime was set up in 1950 bringing high inflation and depreciation after abolishing a currency board which had kept the economy stable through World Wars and a Great Depression.
Due to the liquidity injection tools of the central bank which trigger forex shortages Sri Lanka frequently runs into forex shortages and currency crises which lower living standards of the people and trigger social unrest.
Sri Lanka now has difficulty in importing oil and other essentials, though the central bank has allowed rates to go up, reduced money printing and domestic credit allowing the external sector to stabilize.
“When we were small our parents used to scare us saying that you may be taken to Mannar to make dry fish,” Minister Gamage said.
“Is making dry fish the solution to Sri Lanka? Why do we keep Mannar to produce dry fish, when we can earn dollars?
Since the setting up of the Latin America style central bank the rupee had depreciated from 4.70 to the US dollar to 360. Sri Lanka defaulted on dollar loans in April 2022 for the first time. The seeds of the next crisis is being now planted with le (Colombo/Sept14/2022)