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Banks mandated to sell 25% of converted forex to CBSL

28 Dec 2021

  • Cabraal issues new regulation to build up reserves
  • Previous requirement was to sell 10% of forex
    BY Shenal Fernando Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal has issued new operating instructions to licensed banks (LBs), requiring them to mandatorily sell 25% of all US dollars converted by them on a weekly basis. Accordingly, 25% of the foreign exchange received by LBs during the week in the form of foreign worker remittances converted, residual amount of export proceeds mandatorily converted, and foreign exchange in the hands of the public which have been converted are required to be mandatorily sold to the CBSL. This new rule was effective from yesterday (27) and represents a significant upgrade from the previous similar operating instruction issued by the CBSL on 28 May 2021, which required LBs to mandatorily sell 10% of all voluntary conversions of worker remittances on the strength of the additional Rs. 2 incentive provided by the Government on such conversions. This new rule represents the latest mechanism introduced by the CBSL to address the rapidly worsening foreign exchange liquidity issue of the country. Previously, in October, the CBSL announced a total conversion requirement subject to certain exceptions on all earning merchandise and service export earnings. The recognised exceptions under this mandatory conversion requirement of export proceeds include exporters may utilise export proceeds for outward remittances in respect of current transactions; withdrawal in foreign currency notes, as permitted; debt servicing expenses and repayment of foreign currency loans; purchases of goods and obtaining services including one-month commitments; and payments in respect of making investments in Sri Lanka Development Bonds (SLDBs) in foreign currency up to 10% of the export proceeds, so received. Furthermore, in early December, the CBSL announced that it would be granting foreign workers who remit their earnings through LBs and other internationally accepted formal channels an incentive of Rs. 8 per US dollar in addition to the existing incentive of Rs. 2, during the month of December. Subsequently, the CBSL announced that the beneficiaries of the incentivised exchange rate of Rs. 210 per US dollar or such equivalent amount would be extended to include any person who converts foreign currency in their possession during the month of December. Last Friday (24), the CBSL once again stated that it would continue granting this incentivised exchange rate for worker remittances beyond December. The CBSL further stated that it will bear the transaction cost incurred by Sri Lankans working abroad up to a defined limit when remitting their money to Sri Lanka through exchange houses and/or banks.


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