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People exchanging dollars to get Rs.10 extra per USD

14 Dec 2021

  • Bonus for migrant workers extended to those living in SL too
  • Central Bank says new initiative is to encourage reserves
BY Shenal Fernando The Central Bank of Sri Lanka (CBSL) has issued a notice to the public to convert any foreign currency which is in their possession within the month of December to enjoy an incentivised exchange rate of Rs. 210 per USD or such equivalent amount, following a similar offer extended to Sri Lankan migrant workers earlier this month. Accordingly, any person in possession of foreign currency obtained by purchasing from a bank or an authorised money changer for travel abroad and brought back underutilised into Sri Lanka (up to $ 15,000 or an equivalent amount); withdrawn from a personal foreign currency account (PFCA) for travel abroad (up to $ 15,000 or an equivalent amount); earnings from employment, profession, or business while abroad and brought into Sri Lanka; and acquiring and bringing into Sri Lanka for deposit in special deposit accounts (SDAs) on or after 1 January 2021 may receive this incentive exchange rate during the month of December. Such persons can obtain this incentivised exchange rate of Rs. 210 per US dollar or such equivalent amount by converting their foreign currency in to Sri Lankan rupees at any bank during the month of December 2021; depositing such foreign currency into Sri Lankan rupee accounts at any bank during the month of December 2021; depositing such foreign currency into their PFA or SDA at any bank; or investing such foreign currency into Sri Lankan development bonds through their banks. Previously, the CBSL announced at the beginning of December that it would be granting foreign workers who remit their earnings through licensed banks (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. Accordingly, this new development has extended the beneficiaries of this incentivised exchange rate to all persons who may possess foreign currency. Speaking to The Morning Business, CBSL Deputy Governor K.M. Mahinda Siriwardana stated that this new initiative was introduced by the CBSL to increase the foreign reserves of the country and described it as “part of several additional measures implemented by the CBSL to complement measures to strengthen foreign reserves already targeted under the CBSL six-month roadmap”. Responding to our query as to whether there are other similar initiatives in the pipeline to strengthen the foreign reserve position of the country in the near term, he claimed that the CBSL will be focusing on the other areas mentioned in the six-month roadmap to increase foreign exchange (forex) inflows to the country. The aforementioned six-month roadmap, published by the CBSL, mentions several ways through which the Government of Sri Lanka plans to increase forex inflows, including tourism cash flows, increase in foreign direct investments (FDI) with the Port City and industrial zones taking off, export earnings above $ 1 billion per month, government-to-government financing with $ 1 billion expected by end of 2021, and monetising selected non-strategic and under-utilised assets to gain $ 1 billion. Other measures include facilitating inflows from the implementation of the Tax Amnesty through the Finance Act to gain $ 100 million, continuing the scheme to pay an extra Rs. 2 per US dollar remitted and converted by workers abroad, negotiating short-term currency swaps with international counterparts to acquire $ 1.5 billion, and pursuing efforts to attract foreign investments into government securities targeting $ 1 billion. However, this new development of extending the beneficiaries of the incentivised exchange rate was criticised by Samagi Jana Balawegaya (SJB) MP and senior economist Dr. Harsha de Silva on his official Twitter handle, who claimed that as a result of these initiatives, there are two official exchange rates within the country during the month of December, similar to the dual exchange rate implemented in Sri Lanka during late 1960s to early 1970s – one exchange rate for importers and exporters and a separate exchange rate foreign workers and the general public in possession of foreign currency. “Back to the early 1970s! Here is the new and improved Foreign Exchange Entitlement Certificate Scheme (FEECS). So now Sri Lanka has two official exchange rates. As per CBSL the TT (Telegraphic Transfer) buying rate is Rs. 198.50 and here it’s Rs. 210. It didn’t work then, it won’t work now.” From independence to 1977, Sri Lanka had a fixed exchange rate which was initially pegged to the sterling pound and then to the US dollar. However, by the mid-1960s, the country was facing a severe balance of payment (BOP) crisis due to decreasing export prices and increasing imports. Therefore, in 1968, the FEECS was introduced to decrease the pressure on the country’s BOP. The dual exchange rate system introduced under this scheme involved one official rate applicable to essential imports and non-traditional exports, and another higher official rate applicable to all other exports and imports. While the objective of this dual exchange rate system was to ensure export diversification and import compression, it amounted to subsidising the cost of providing the foreign currency at lower rates to the non-traditional exporters, which eventually had to be borne by the government.


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