ECONOMYNEXT – Sri Lanka will bring a new foreign exchange law ‘to protect foreign reserves from irregular transactions’ a budget for 2017 has said moving sideways from an earlier stance that foreign exchange controls will be abolished.
The budget however said the existing Exchange Control Act will be repealed.
Sri Lanka brought draconian foreign exchange controls after a money printing central was set up in 1951, generating dollar shortages and pressure on the currency.
Before 1951, Sri Lanka had a currency board where the exchange rate was fixed to the Indian rupee (silver).
The rupee did not move from 1885 until the creation of the central bank as money printing was legally prohibited.
The current administration also imposed exchange controls on exporters after printing money to finance a deficit and keep rates low.
Sri Lanka is trying to make Colombo a financial centre, but analysts say without a complete overhaul or abolition of the central bank, the idea will be a pipe dream.
Sri Lanka has held Dubai, Singapore and Hong Kong as examples.
But Hong Kong has an orthodox currency board, Singapore a modified one, and Dubai mimics US interest rates and operates almost like a currency board. (November 26/2016)