Business

Chinese swap unusable even for Chinese imports

  • Central Bank to re-negotiate conditions of swap 
  • Requests discussions with Chinese Embassy 

 

 

By Imesh Ranasinghe 

China’s currency swap of Chinese Yuan (CNY) 10 billion (close to $ 1.5 billion) cannot be used even to fund Chinese imports to Sri Lanka, said Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe. 

In his address to the media on Wednesday (11), the Governor said that the Chinese swap cannot be used for anything at the moment due to the conditions of the swap laid out by the People’s Bank of China (PBoC). 

He added that although the swap has been added to the foreign reserves of the CBSL, it cannot be used due to the conditions mentioned by PBoC. 

“We have requested a discussion with them (Chinese Embassy), so that they will release it in a manner where we can use it,” the Governor said. 

He noted that the discussions with the Chinese authorities will look to use the swap to fund at least the Chinese imports to Sri Lanka. 

According to CBSL, in 2021, imports from China amounted to $ 4.7 billion which is 23% of the total import share of the country. China has been the largest source of imports to Sri Lanka since 2019. 

However, The Morning Business did not get a response from the CBSL Governor’s office on the conditions mentioned in the agreement that makes the swap unusable to fund imports despite many attempts. 

CBSL and PBoC entered into the currency swap agreement for CNY 10 billion in March 2021 valid for three years “with a view to promoting bilateral trade and direct investment for economic development” of the two countries. 

However, a statement by CBSL after the swap agreement was signed, said that both central banks agreed to use the swap “for other purposes agreed upon by both parties”. 

This swap agreement was approved by the cabinet at the time with the recommendation of the Monetary Board of CBSL. 

The amount under the swap agreement finally was included ($ 1.5 billion) in the CBSL foreign reserves in December 2021, raising reserves to $ 3.1 billion by the end of 2021. 

“This swap was an accounting trick of Cabraal, and should not be included in the reserve figures. Besides, Yuan swap doesn’t make much sense as most Chinese exporters invoice in US dollars – meaning we have to pay in US dollars for most Chinese imports, not in Yuan,” Tweeted University of Colombo Department of Economics Lecturer Umesh Moramudali.