ECONOMYNEXT – Sri Lanka’s Supreme Court has upheld the freedom of workers in China-backed Colombo Port City to be given foreign currency salaries and ruled that any violation of the rights of constitutional rights of other workers outside came from rupee depreciation.
By denominating economic activities including salaries in a series of desginated foreign currencies, the Colombo Port City is intended to be a ‘dollarized’ with multiple currencies.
Workers would therefore be protected from the currency collapses that come from policy errors or deliberate real effective exchange rate (REER) targeting of the Monetary Board of the central bank and resultant real salary and savings destruction that impoverishes them.
A petitioner who challenged a bill to set up Port City Commission had argued that the payment of salaries in foreign currency deprived workers outside the area from the same protection due to the depreciation of the rupee.
But the Supreme Court, also citing a a previous case said any violation of Article 12 of Sri Lanka’s constitution, “would be a result of the depreciation of currency and not a consequence of the Bill.”
The Supreme Court accepted the view put forward by the Additional Solicitor General that even under Sri Lanka’s existing laws, there was no prohibition on salaries of Sri Lankans being paid in foreign currency.
The Port City is expected to draw foreign talent and also stop the drain of talent to that is taking place to countries with monetary stability and better economic opportunities.
Sri Lanka’s rupee has been depreciated steadily from 4.70 to 202 to the US dollar since a Latin America style central bank was set up by a Federal Reserve official in 1950.
Since 2015, under discretionary ‘flexible inflation targeting’ and ‘flexible exchange rate’ the rupee depreciation has accelerated from 131 to 203 to the US dollar triggering severe monetary instability and output shocks.
Economists have pointed out that flexible inflation targeting was a ‘corrupted’ framework of the original.
Triggering monetary instability also violates the economic and price stability objective of the Monetary Law, critics have said. (Colombo/May19/2021)