SRI LANKA NEEDS TO CHANGE ITS MONETARY UNIT (PART 2)
Posted on May 25th, 2020

BY EDWARD THEOPHILUS

It is considered that the rapid decline of Sri Lanka rupee created a favorable environment for exporters and Sri Lankans who are in foreign employment, however, the reality is that a rapid decline of the rupee value has massively impacted on the increase in domestic inflation as well as the increase in the budget deficit which forces to borrow to cover the budget gap and increase taxes.  The current low foreign value of Sri Lanka rupee is a hindrance to maintain macroeconomic stability in the country achieving sustainable economic growth. 

After ending the war in 2010, there were many positive signals that the country should have moved upward trend and several sectors of the economy such as tourism, agriculture, and fisheries are embarking to high growth.  Sri Lanka is recognized as an emerging economy.  Although the size of the economy needs to be expanded to 10 times than current level, foreign assets and reserved should visibly be increased, economic policy actions have less focused on macroeconomic fundamentals, in the effort to gain international value to Sri Lanka, it is essential a strong currency unit for reflecting the international value of Sri Lanka’s assets.

What should do to give international value to Sri Lanka’s assets?  Sri Lanka does not want an over value currency unit, which erodes international competitiveness.  Sri Lanka needs to work as a strong merchandise and service export base in Asia.  However, the rupee will not support to fulfill the expectations of the nation and this writer considers that changing the monetary unit rupee replacing the RIX DOLLAR would support to maintain internationally better valued currency unit in the country, which represents a reasonable international value of Sri Lanka’s assets.  The current 100 rupees could be set to one Rix dollar, in which a USD will be equivalent to Rix $ 1.20 and all currency and rupee assets could transfer to Rix dollar bases according to and this would not be a complex process.  Sri Lanka has good experience in demonetarizing policy by the cancellation of Rs 100 and 50 notes in 1970 and people can be adapted into new currency without any difficulties.

Many countries in the world have changed their currency units and many countries will be changed their currency units in the future and this will not be the end of the world.  The change of Sri Lanka rupee to Rix dollars with a new parity will reduce current administration cost for maintaining a massive volume of notes and new dollar notes could be issued with a yellow back with a picture of a branch of Jayasri Mahabodhi in similar denominations for 1, 2, 5, 10, 20, 50, 100, 200 and 500 denominations.  When people are telling greenback to USD, they will tell yellow back to Sri Lanka’s currency. 

In the year 2000, all European countries change their exchange unit to Euro, it was a peaceful transformation and at the beginning, Euro had a declining trend but later it came up as a strong currency unit despite some problems in certain European countries such as Greece, Spain, Portugal, and Italy.  Under the market economic policies that widely initiated after the cold war, many countries allowed to float domestic currency units but primary commodity-exporting countries’ currency units badly declined despite a strong recovery of the economy in the mid of 1990.  Metal and oil prices were double during the past two decades despite a favorable increase in prices and improvement of domestic economic conditions, currency units are subject to decline, which creates many problems for these primary commodity-producing countries. Commodity prices have changed during the past decade and the COVID 19 further declined the prices.  Many countries talk going back to production bases and changing the economies.  The IMF has concerned about the declining trend of hard currencies but reluctant to talk about the declining trend of emerging nations.

Sri Lanka’s economic renaissance after ending the terrorist war in 2010 invites radical changes in many areas and changing the monetary unit is an essential change that should have effected from 2015 to boost the economy as well as to give due international recognition to Sri Lanka.  The yahapalana regime did not concern in these matters, they were hanging in unnecessary issues. 

Politically, Sri Lanka has a good environment to change the name of the official currency unit.  After becoming the president, Mr.Gotabaya Rajapaksa it seems that he has an intention to make a fresh start in all areas of the economy and change of the name of the monetary unit will be the beginning of a renaissance in all areas of the economic, political, social, ethnic and religious system. Mr.Gotabaya Rajapaksa can give excellent leadership.

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