Sri Lanka to decriminalize foreign exchange control violations
ECONOMYNEXT – Sri Lanka has drafted a new law to regulate foreign exchange inflows and outflows, which will revamp existing law, Mass Media Minister Gayantha Karunathilake said.
The new law will end criminal penalties, and instead impose civil penalties for violations.
The Finance Minister will also have powers to intervene to ‘protect’ the economy.
Sri Lanka enacted a draconian exchange control law in 1952 after a money printing central bank with a soft dollar peg was set up, abolishing a currency board (hard peg) that had kept the currency fixed from 1885.
The Central Bank frequently attempts to keep interest rates down by printing money, generating ‘foreign exchange shortages’, and then imposes control on forex flows to prevent the currency collapsing.
When large volumes of money are printed, like in 2015, exporters try to hold back dollars, and others who do not want their savings destroyed also try to convert rupees to dollars.
On January 02, a new threat emerged to Sri Lanka’s economy in the form of massive amounts of money printed to repay maturing bonds, analysts warn. (Colombo/Mar23/2017)