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Freezing illegal money exchanges not viable: CBSL

03 Dec 2021

  • Workers should have freedom of choice: Prof. Sirimevan Colombage
  • CBSL should address the root cause first: Dr. Shanuka Senarath
  • Intention is to highlight illegitimacy of such channels: Central Bank
  BY Shenal Fernando Following the Central Bank of Sri Lanka’s (CBSL) decision to tackle the unauthorised money exchanges that provide a higher rate for the US dollar and freeze their accounts, economists and experts have raised concerns over the feasibility of CBSL’s decision. Speaking to The Morning Business, eminent economist Prof. Sirimevan Colombage described the new strategy as “unfair” and claimed that foreign workers should have the freedom of choice, adding that he doesn’t believe this strategy will be effective. Explaining further, he claimed that the sort of monitoring required under this strategy is practically impossible, and that people will continue to avoid formal channels and will prefer the informal channels to remit their earnings. Under this new strategy, the Monetary Board of the CBSL announced that foreign workers who remit their earnings through official channels would receive an incentive of Rs. 8 per US dollar in addition to the existing incentive of Rs. 2 under the “Incentive Scheme on Inward Workers’ Remittances”. Meanwhile, CBSL Governor Ajith Nivard Cabraal, through his official Twitter handle, mentioned that the bank accounts of those who distribute and receive money through unlawful money transmission methods will be frozen. The move also comes at a time when the CBSL told us that the directive issued to licensed commercial banks (LCBs) to keep the selling rate of the US dollar below Rs. 203 will not be revoked any time soon. Speaking to us, University of Colombo Department of Economics Senior Lecturer Dr. Shanuka Senarath questioned the feasibility of the proposed strategy to freeze the accounts of those who transmit money through informal methods, because, usually, foreign workers will pay an agent of the person running the informal channel in foreign currency, and once paid, the agent will not transfer the money to Sri Lanka. “Instead, the person running the informal channel will pay the foreign worker representative an equivalent amount in rupees. In the absence of a cross-border transaction, how will the CBSL implement its threat to freeze accounts?” he questioned. According to Dr. Senerath, instead of freezing people’s accounts, the CBSL should address the root cause behind why people prefer informal, riskier channels over the formal channels when repatriating the earnings. “Sending money through proper channels has a lot of red tape and involves considerable hassle. For example, whenever I come to Sri Lanka and I want to deposit money into my NRFC (non-resident foreign currency) account, it must be made within two weeks of my arrival, and when withdrawing it from Sri Lanka, I would have to present my ticket; if not or if I ask for my money before that, they would pay me only in rupees. This situation has been worsened by the fact that there are many exchange rates in the country; if money is sent through proper channels, the Government will convert it at around Rs. 198 or whatever price is fixed by the Government. However, if you go to Chatham Street or Pettah, the price of a US dollar is around Rs. 240, and in the case of an Australian (dollar), there is about a Rs. 50-60 margin,” stated Dr. Senerath. He further stated that the Government can freeze a few hundred accounts but it won’t stop these informal channels nor will people stop using such informal methods. The Government should address the root causes instead of taking such a heavy-handed approach, he stressed. He described this strategy as “childish and immature” and drew parallels with the recent measure to forcefully convert the export proceeds. He urged the CBSL to focus on facilitating ease of remitting money through formal channels. CBSL Deputy Governor T.M.J.Y.P. Fernando informed us that the intention of the Central Bank Governor was to inform foreign workers of the illegality of such informal methods and to not to get involved in such unlawful activities, as the CBSL will take actions against such channels. Explaining further, she stated that this statement was made as part of their ongoing monitoring, and as a consequence of the drastic decrease in foreign exchange inflows recently, the Governor had wanted to convey that worker remittances must be made through proper channels, so that they can be considered legitimate; otherwise, necessary action will be taken. “This is not a new mechanism to be implemented by the CBSL, but is merely the implementation of the CBSL’s prerogative or existing powers,” Fernando said. This carrot and stick policy strategy was not received favourably by foreign expats who viewed it as an unfair interference in their personal affairs. A foreign worker told The Morning Business: “We don’t live comfortable lives abroad. We work long hours and sacrifice our comfort to build a better future for ourselves and our family. The CBSL wasn’t there helping me complete my shifts, so how can they ask me to send my money home at a discount? I worked hard for it and I have a right to get the maximum return for it.” Similar sentiments were expressed on social media, with one user stating: “They (CBSL) are always trying the hard way. Just unpeg the US dollar for two weeks. You will see your harvest from us. We will not pay Rs. 203 and are waiting for Rs. 230 at least. Anyway, thanks for paying Rs. 10 on top of Rs. 203; it means you know it’s worth more than Rs. 203.” Similarly, another stated: “Most people hold their foreign currencies. People face many difficulties withdrawing money from Sri Lankan banks when it comes to foreign exchange. So why would people send money?”

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