{"id":103757,"date":"2020-06-20T15:59:58","date_gmt":"2020-06-20T22:59:58","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=103757"},"modified":"2020-06-20T15:59:58","modified_gmt":"2020-06-20T22:59:58","slug":"how-our-central-bank-sidetracked-their-real-duty-of-safeguarding-our-foreign-exchange","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/06\/20\/how-our-central-bank-sidetracked-their-real-duty-of-safeguarding-our-foreign-exchange\/","title":{"rendered":"How our Central Bank sidetracked their real duty of safeguarding our foreign exchange"},"content":{"rendered":"

By Garvin Karunaratne<\/em><\/span><\/h2>\n\n\n

It is sad to note that ever since the International Monetary\nFund(IMF) took over running our country at the end of 1977, the Central Bank\nhas been playing a dubious role.<\/p>\n\n\n\n

Let us take the devaluation of our Rupee. I quote from my book: How\nthe IMF Sabotaged Third World Development:<\/p>\n\n\n\n

In 1977 with the Structural Adjustment Programme being enforced on\nSri Lanka  the control of our foreign\nexchange went out of the control of the Central Bank to the foreign banks and\nto the private sector.<\/p>\n\n\n\n

President Jayawardena meekly submitted and the Rupee was devalued\nfrom Rs 15.00 to Rs. 32.00 to a pound sterling in a few months at the end of\n1977. That was a devaluation of over a 100%! Thereafter the IMF repeatedly\ntried to get the two State banks privatized but the Government resisted. In\nmany countries the State banks are no more \nand the foreign banks really control the foreign exchange of the\ncountry.<\/p>\n\n\n\n

Let us go into detail because no one will believe this. It is\nreally the height of absurdity to even think that the foreign exchange of Sri\nLanka is controlled by the foreign banks and the private companies.  But this is the hard truth.  Even our celebrated economists fail to get\nout of the clutches of their text books to understand how  the IMF has commenced controlling our\neconomies.<\/p>\n\n\n\n

The IMF itself has said:<\/p>\n\n\n\n

In a free floating regime the exchange rate is determined by the\nmarket forces. The Central Bank does not intervene in the process.. The Central\nBank has control over the domestic money supply\u201d<\/p>\n\n\n\n

Let us look at what happened in reality when Sri Lanka  free floated the Rupee in 2001.<\/p>\n\n\n\n

The incoming foreign exchange itself was manipulated by the\nforeign banks to earn profits. When the two State banks had to pay a large bill\nin foreign currency and the two public sector banks did not have sufficient\nforeign funds to meet the bill, they had to buy foreign currency from the\nforeign banks that had collected  foreign\ncurrency and were hoarding it,  The\nforeign banks then increased  the price\nof the foreign exchange they held. This did happen in Sri Lanka on 25\/1\/2001\nwhen the US $ that was trading around Rs 82.00 was increased to Rs. 100.00 and\nRs. 106.00. The profit in this increase goes to the foreign bank. The State\nbanks had to buy the  dollars at the high\nprice quoted by the foreign bank. The Central Bank of Sri Lanka was helpless.\nThe Central Bank said: \u2019In a free floating regime the market forces determine\nthe exchange rate.. The Central Bank does not intervene in the process.. The\nCentral Bank has control only over the domestic money supply.\u2019(The Island.lk\n17\/2\/2001)<\/p>\n\n\n\n

This is the policy even today(2020) Thus even the foreign exchange\nearnings of a sovereign country  is a\ncommodity exploited to make a profit.<\/p>\n\n\n\n

The manipulation of currencies is quite a common\noccurrence”.(From How the IMF Sabotaged Third World Development(2017,\npg 44)<\/p>\n\n\n\n

My opinion is that we do not require a vast Central Bank to handle\nthe domestic Rupee. A senior administrator from the Administrative Service can\neasily handle that task with a few Accountants and clerical officers<\/p>\n\n\n\n

This detail of what did really happen in Sri Lanka on 25\/1\/2001\nillustrates the predicament in which our country is faced. We do not even get\nthe foreign exchange that comes in. The foreign exchange that is collected by\neach bank is treated as the property of that bank and they can manipulate an increase\nin the sale price by hoarding the currency they have collected. Each bank fixes\nits own buying and selling rates. Let me tell my own experience of how the\nforeign banks hoard our foreign currency. – In around 2000 I instructed my\nBank, the Bank Of Scotland to remit a thousand pounds to my NRFC Account at the\nBank of Ceylon. I was due to go on a holiday to Myanmar and I needed dollars.\nStrangely this money came to my NRFC in Rupees and the Bank of Ceylon Foreign\nBranch told ,me that this happens very often. They told me that the Rupees were\nsent by Standard Chartered Bank and directed me to them. Standard Chartered\nrefused to credit the money in pounds to my NRFC account and I had to have a\nbitter fight with them for two full days, even throwing my weight about to get\nthe money in dollars. At that times there were around four SLAS officers who\nhad worked directly under me who were Secretaries of important Ministries and I\nhad to quote their names.  With that the\nbank caved in. This proves the fact that the local foreign banks fight to get\nhold of the dollars that come in.\u201d (From: How the IMF Ruined Sri Lanka &\nAlternative Programmes of Success. <\/p>\n\n\n\n

This happened in 2000 and imagine the hoarding of our foreign\nexchange the foreign banks have been doing upto now.<\/p>\n\n\n\n

Going further into our foreign exchange- what happens to the\nforeign exchange that is collected by private registered money changers- and\nthey do collect far more than all the banks put together. The fact is that the\nforeign exchange collected by money changers is sold immediately to customers\nwith a profit. There too the Money Changer fixes the  rate. It is important to note that this money\ndoes not come into thde <\/p>\n\n\n\n

This collection does not come into the coffers of our\nGovernment.  <\/p>\n\n\n\n

What is the possible remedy. This is simple. Have a currency board\nand the Government has to collect the total foreign exchange that  comes in, The Government has to fix the\nbuying and sales price and all banks and dealers have to buy and sell at the\nrates fixed by the Government. Professor Steve Hanke of the USA  is perhaps the only world authority on this\naspect. He came in when similar foreign exchange  problems cropped up in Turkey and in Indonesia.\nThere he recommended that the only way is to abandon floating and install an\northodox currency board with a fixed exchange rate.\u201d<\/p>\n\n\n\n

It is the height of absurdity to allow our hard earned foreign\nexchange to be manipulated by foreign banks- to make a profit. <\/p>\n\n\n\n

To my thinking  . Every\ndollar that comes in has to be the guarded property of the Government. <\/p>\n\n\n\n

There are further developments that have come about which deserves\nimmediate attention  by our Central Bank.<\/p>\n\n\n\n

In the past few decades money transfers are made without reference\nto banks. Dollars are paid in a foreign country to  dealers and telephone instructions are made\nto hand ovcr  rupees in Sri Lanka. No\ndollars get sent to Sri Lanka.  Ways and\nmeans have to be developed to get this money sent to Sri Lanka in dollars. <\/p>\n\n\n\n

There are many investors that bring in a small investment, get\ndown to trade in the local rupee and take away the profit in dollars from our\nreserves for ever.  This is I think not\nallowed by the recent decision of the Government not to allow the  repatriation of  profits. However investors would have entered\ninto agreements to enable them to take the profit in dollars. These go from our\nreserves. Our country is the net loser.<\/p>\n\n\n\n

Another recent development is for Uber eats and Uber Cars to trade\nin local rupees and take away profits in dollars. This is not a small amount\nwhen one notes that Uber Eats delivered 3 million orders within 3 months(\nAdaDerana:17\/10\/2018) Here too it is our foreign exchange reserves that gets\ndepleted when profits are repatriated. Hope this is covered by the recent\ndecision to stop repatriation of profits. <\/p>\n\n\n\n

Another development is in hotel bookings. Advertising hotel\navailability is today, totally handled by foreign companies based overseas.\nThey take the bookings but the condition is that the payment is to be collected\nby the hotel in local Rupees. However the hotelier gets an invoice from the\ninternational booking agency to pay 15% of the collection. The hotelier takes\nthis invoice to a bank and the bank pays it in dollars. Here too our reserves\nsuffer. Not a dollar has come in but out goes the payment in dollars again from\nour reserves. In fact it is important to note that tourism as happens today\ndoes not bring in foreign earnings.  The\nanswer lies in out tourist authority running a business to market hotel\nbookings  using the internet and charge\nin foreign currency. There is no other way. An immediate decision is to stop\npaying the 15% to the foreign booking agency in dollars unless the hotelier\ngets paid in dollars and the dollars are banked by the hotelier in a bank. .  <\/p>\n\n\n\n

It is time that our Central \nBank sleuths come out of their slumber and get down to  real hard thinking as to what happens to our\nforeign exchange. It is the Central Bank and no one else that can look into\nthis.<\/p>\n\n\n\n

Garvin Karunaratne, Ph.D. Michigan State University<\/p>\n\n\n\n

Author of \u00a0How the IMF Ruined Sri Lanka and Alternative Programmes of Success, Godages, 2006\u00a0How the IMF Sabotaged Third World Development, Kindle\/Godages: 2017<\/p>\n\n\n\n

19\/06\/2020,\n<\/p>\n","protected":false},"excerpt":{"rendered":"

By Garvin Karunaratne It is sad to note that ever since the International Monetary Fund(IMF) took over running our country at the end of 1977, the Central Bank has been playing a dubious role. Let us take the devaluation of our Rupee. I quote from my book: How the IMF Sabotaged Third World Development: In […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57],"tags":[],"class_list":["post-103757","post","type-post","status-publish","format-standard","hentry","category-by-garvin-karunaratne"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/103757","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=103757"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/103757\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=103757"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=103757"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=103757"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}