Sri Lanka rupee internationalization detected
ECONOMYNEXT – Sri Lanka’s customs authorities have seized 44 million rupees (290,000 dollars) worth Sri Lanka rupee notes, which a couple of travellers were attempting to take to Dubai, without declaring to the authorities, a media report said.
Customs Deputy Director at Sri Lanka’s Katunayake international airport Parakrama Basnayake was quoted by Sri Lanka’s Daily Mirror newspaper as saying that it is believed to be the largest seizure of Sri Lanka rupee notes in history.
Under Sri Lanka’s customs and forex laws only a limited amount of currency of around 20,000 US dollar can be carried by travellers.
Sri Lanka imposed draconian foreign exchange controls after the creation of a money printing central bank in 1951 led to ‘forex shortages’ and balance of payment crisis.
The bank is still printing money, creating balance of payments crisis, and robbing real wealth and real wages of the people by depreciating the currency.
The rupee which was on par with the Indian rupee under British rule through a currency board, was also convertible. At the time the dollar was about 4.76 rupees.
The central bank has printed enough money to bust it to 152 rupees to the US dollars in the intervening years, with people preferring ‘hard currency’ (money issued by central banks with tighter monetary policy or rules).
The external demand for a currency is ultimately determined by the by goods and services of a country which are exported. If resident suppliers of goods and services are prepared to receive rupees from forigners directly – like US, or UK producers – the rupee will be in greater demand abroad.
But there is a preference to receive ‘hard currency’ by people inside Sri Lanka, rather than rupees, though most of an exporter’s expenses could be in rupees, on the belief that the rupee is worthless due to frequent BOP crisis and exchange restrictions, which follow.
However the attempt to smuggle out rupees shows a degree of internationalization of the currency.
Sources says some smart expat workers in the Middle East prefer to convert their Middle Eastern salaries in the unofficial market at better rates before coming to Sri Lanka, as well as reducing conversion and transaction costs, leading to some demand for rupees abroad.
While Sri Lanka’s customs is busy blocking the internationalization of the Sri Lanka rupee, China has been trying to encourage the use of the Renminbi abroad.
Sri Lanka’s central bank Governor Indrajith Coomaraswamy has said that only the preference for US dollars by Chinese exporters were preventing the greater use of Yuan.
There is demand for the Sri Lanka rupee also in some South Indian cities.
Part of the demand is fuelled by ‘under-invoiced’ imports encouraged by excessively high taxes imposed by the state.
Exchange controls and excessive import taxes, has led to unofficial international net settlement systems such as ‘havala’. Periodic net settlements are made in cash by ‘mules’ or ‘carriers’.
The young couple detected in Colombo, were also carrying 45,000 US dollars, 35,00 Omani Riyals, 2,685 Bahrain Dina, 599,500 Saudi Riya and 72,000 UAE Dirhams.
The report indicated that the travellers may be ‘mules’, acting at the behest of a third party.
Sri Lanka is bringing a new foreign exchange law in October 2018, which will decriminalize foreign exchange ‘offences’ (most of which are essentially attempts by unarmed citizens to protect themselves.
Allowing rupees to be taken out, used and circulated abroad will also expand the reserve money base, and help the central bank make more seniorage profits without creating inflation and currency depreciation. From the point of view of the domestic banking system exported notes are effectively ‘private sector sterilized’.
About 400 billion dollars of notes printed by the Federal Reserve are belived to be outside the country. (Colombo/Sept24/2017 – corrected – Allowing rupees to be taken out, used and circulated abroad will also expand the reserve money base, and help the central bank make more seniorage profits without creating inflation and currency depreciation. From the point of view of the domestic banking system exported notes are effectively ‘private sector sterilized’.)