brand logo

New Central Bank Act abandoned

23 Aug 2020

The new Central Bank Act, which was proposed to replace the existing Monetary Law Act with the aim of depoliticising the Central Bank of Sri Lanka (CBSL), has been abandoned by the Government, The Sunday Morning Business learns. When contacted for confirmation last week, Central Bank Governor Prof. W.D. Lakshman stated that the new Act will not be proceeded by the new Government. “I do not think it will be passed and I do not think the Government will proceed with it,” Prof. Lakshman added. Plans of bringing in a new Act that could replace the 70-year-old Monetary Law Act, which established the Central Bank and Sri Lanka’s monetary system, were initiated by the Central Bank under former Governor Dr. Indrajit Coomaraswamy. The last development of the new Act was that the drafted Bill was submitted to the Parliament by then Minister of Finance Mangala Samaraweera, prior to the presidential election in November 2019. However, it was not taken up at the Parliament under the present Government before it was dissolved on 2 March for the general elections in April. The Bill was drafted to strengthen the independence of the Central Bank and was submitted to Parliament, following the approval of the previous Cabinet. The Bill did not permit CBSL to participate in the primary auction and was expected to create confidence amongst the foreign investors about Sri Lanka. Furthermore, the Bill carried three main changes. The first was that that the Central Bank’s existing Monetary Board which oversees the institution’s activities will be bifurcated or broken up into two separate boards. Upon the bifurcation, the Monetary Policy Board will be formed comprising economists and the Board will be responsible solely for the monetary policy formulation of the CBSL. Neither the Treasury Secretary nor any member of the Government would be a member of this Board. The second Board would be a governing board which would oversee all the activities of the CBSL, apart from the monetary policy decisions. The Treasury Secretary would be a voting member of the Governing Board. Secondly, the Central Bank would not be allowed to participate in primary auctions. The third change was the addition of economic growth to the list of objectives of the CBSL. Currently, the CBSL’s two primary objectives are economic and price stability and financial system stability. However, under the amended draft Bill, the CBSL would also have to ensure its monetary policy is geared towards gross domestic product (GDP) growth, which goes beyond economic stability. When the Bill reached Parliament last year, it faced stiff opposition from the Parliamentary Committee on Public Finance as it was divided on the proposal to remove the Treasury Secretary from the Monetary Board. Then parliamentarians Bimal Rathnayake and Dr. Bandula Gunawardana, representing the Janatha Vimukthi Peramuna (JVP) and the “Joint Opposition”, respectively, in the committee, opposed the move. Then Committee on Public Enterprises (COPE) Chairman Sunil Handunnetti told The Sunday Morning Business at that point that there is no point in the CBSL being independent when all the other institutions in the country are not dysfunctional. Meanwhile, Dr. Gunawardana, the Cabinet Spokesman for the current Government, noted that the Central Bank’s independence should not be taken seriously as none of the “independent” institutions in Sri Lanka are actually independent.


More News..