Sri Lanka to effectively demonetize ‘willfully mutilated’ currency
ECONOMYNEXT – Sri Lanka’s central bank has warned the public that currency notes that are ‘wilfully mutilated’ will not be replaced with fresh notes, after the end of 2017, effectively demonetizing notes that have drawings and writing on them.
The central bank said after December 31, 2017 no claim in respect of altered or mutilated notes will be entertained, and such note will be kept by the bank.
"The holders of these currency notes will have to suffer the loss of face value of such notes," the Central Bank said in a public notice.
The central bank has given six months to exchange such notes.
Anyone who has notes on which doodles, numbers or love notes written on them can deposit them at commercial banks, until the end of the year.
Under Sri Lanka’s Monetary Law, the central bank is under no obligation to replace notes that have been deliberately mutilated, though in practice it has done so up to now.
After December 31, commercial banks will stop accepting notes on which various things have been written.
"No claim in respect of a wilfully mutilated note shall be entertained by the authorized officer," says regulation E10 of the Monetary Law Act.
"If there are clear indications of wilful mutilation, the authorized officer shall retain the note and in addition require every tenderer of a wilfully mutilated note to state in writing the circumstances in which such note came into his possession."
Under the monetary law, mutilating notes is an offence, which is punishable by imprisonment or fine, the central bank said.
A central bank officer said it has a ‘clean note policy’ which attempts to provide good quality notes to the public though some users continued to deface them. Old and damaged note coming to it from commercial banks are destroyed and replaced with new ones.
The intention of the public notice is to create awareness of the monetary law and prevent further deliberate mutilation of notes, an official said.
Some observers say people may discover old notes some of which may have writing on them, and the central bank should consider a process of giving value to the holders, even if they are not accepted at commercial banks after December 2017.
Such practices would help improve the confidence in the Sri Lanka rupee and also investor confidence generally, they say.
India severely damaged confidence in its currency, which was even beginning to be accepted in several Asian informal currency markets by demonetizing large denomination notes, making the Indian rupee a less trusted note than the US dollar or Euro.
Banks notes that are accidentally damaged, including torn notes, will continue to be redeemed, a senior central banker said. The central bank will also redeem a half notes with a number on it, according to the monetary law.
In India some people staple notes together in addition to writing and adding up number of currency notes. Such practices are not found usually in currency notes of advanced countries.
Some countries also use plastic notes now, though in Sri Lanka after a 200 rupee note was introduced the practice has not been continued.
Paper currency or ‘fiat money’ has no intrinsic value and the public is forced to accept them by the state through a coercive ‘legal tender’ law, which outlaws payments or writing contracts in competing currencies, and also makes it compulsory to pay taxes through a domestic currency.
Other laws such as transaction taxes on precious metals are brought to prevent people from moving to gold or silver.
A paper currency loses value when large volumes are printed by the central bank, generating currency depreciation and inflation. (Colombo/June17/2017)