ECONOMYNEXT – Sri Lanka mobile information technology and mobile telecommunication are in a fix after imports of over 300 items including electronic goods was banned by the state amid forex trouble coming from operating an unstable flexible exchange rate.
“Sri Lanka does not produce lithium-ion mobile phone batteries,” Samith Herath, representing an association of mobile phone importers and sellers told reporters.
“So how can we buy these batteries in the future? I have no objections to having a policy on imports. But before banning imports, more attention has to be paid. Views must sought. Otherwise how can we fulfill the needs of the people?”
Sri Lanka’s Finance Ministry banned 305 items indefinitely from August 23 as the country is gripped by the worst currency crises in the history of its money printing central bank set up in 1950.
Forex shortages and currency depreciation and import controls are problems associated with soft-pegged reserve-collecting exchange rate regimes (flexible exchange rates), which are absent in clean floats and hard pegs.
Sri Lanka enacted the import control law now used to disrupt economic activities in 1969, after forex shortages came partly from central bank re-financing of rural credit under then Prime Minister Dudley Senanayake.
In 1971 the US Fed also ran into a currency crises after money printing under Chairman Arthur Burns, and the US dollars peg with gold collapsed.
Then trade controls called the Nixon’s shock was imposed and the dollar floated ending the Bretton Woods system of soft-pegs and a centuries old gold standard.
Forex shortages and currency depreciation are problems associated with soft-pegged reserve-collecting exchange rate regimes (flexible exchange rates), which are absent in clean floats and hard pegs.
“This is an essential product for the young and old,” Indrajith Perera, head of an association representing shop owners said.
“It is very essential for kids who are studying. So what will happen if these imports are banned. Prices of whatever is remaining can go to very high levels.”
Sri Lanka is already facing higher unemployment as construction and other sectors are getting hit as credit is curtailed and rates are allowed to rise to stop the currency crisis.
Price controls from the Consumer Affairs Authority are also threatening the poultry sector.
The Federation of Information Technology Industry Sri Lanka also said the import restrictions made it difficult to maintain computer networks and servers.
The have been calls to tame the central bank and take away its independence to print money through flexible inflation targeting (aggressive open market operations) to maintain monetary stability, avoid Nixon’s shocks, social unrest and malnutrition of children.
Forex shortages and currency depreciation are problems associated with soft-pegged reserve-collecting exchange rate regimes (flexible exchange rates), which are absent in clean floats and hard pegs. (Colombo/Aug30/2022)