Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.

Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

සිංහල පරිවර්තනය
Submit Post
Submit Post
Market Place

Add an ad

View all ads

Latest topics

» Why AAIC Should trade above RS.50/-
by wisdom79 Today at 11:18 am

» LOFC -XR big transaction
by Promoney Today at 10:03 am

by samaritan Today at 9:13 am

» LLUB Pattern reversed. Good buy @60, target +20%
by KOLAA Today at 8:32 am

» Momentum will begin after 5400
by prabath Today at 8:12 am

» WATA future looks good
by Teller Today at 3:36 am

» Look APLA its trending to 98LKR
by Teller Today at 3:34 am

» RICH is not bad @ 9/-
by Teller Today at 3:33 am

» lOFC definitely will hit 6/-
by Teller Today at 3:27 am

» Sri Lanka Dialog Axiata net profits up 21-pct in June quarter
by bhanu Yesterday at 1:17 pm

» AEL lovers good news..Rusi again back on the track to AEL....
by Winner123 Sun Jul 14, 2019 9:32 pm

» Look PAP Amazing company
by Teller Sun Jul 14, 2019 1:03 am

» NEXT GEM.. HNB Non voting (HNB X)..
by samansilva Sat Jul 13, 2019 11:20 pm

» LIOC upward curve
by samansilva Sat Jul 13, 2019 11:17 pm

» TKYO.X0000 will it move furthur?
by samansilva Sat Jul 13, 2019 11:07 pm

» Market will test 4700
by karuna2 Sat Jul 13, 2019 10:46 am

by samansilva Sat Jul 13, 2019 10:15 am

» NEXT RUN People's leasing and Finance WAIT AND WATCH ENJOY RIDE..
by samansilva Fri Jul 12, 2019 2:19 pm

» No Confidance motion against the Government was defeted by 119 and 92 against. 13 Absent
by Capton KIng Cool Fri Jul 12, 2019 9:28 am

» Contact us for your bank instruments such as SBLC/BG/LC/MTN 100% Protected
by summitplc Thu Jul 11, 2019 10:04 pm

» Contact us for your bank instruments such as SBLC/BG/LC/MTN 100% Protected
by summitplc Thu Jul 11, 2019 10:00 pm

by Nuwan Samarawickrama Thu Jul 11, 2019 9:58 pm

» Today JVP's No confidance motation in the Parliment is Very cruicial .WHY?
by Yahapalanaya Thu Jul 11, 2019 9:33 pm

» Sri Lanka’s Royal Ceramics group expands contract manufacture in India
by shameen Thu Jul 11, 2019 11:53 am

» CIND , 10% guaranteed return
by Teller Thu Jul 11, 2019 2:45 am

» BUY AEL Few crossings on the way..
by rukshan1234 Wed Jul 10, 2019 11:51 pm

» Unisyst Engineering Known as(Alufab) have annouced a right issue
by Capton KIng Cool Tue Jul 09, 2019 3:43 pm

» what is the future of KHL (JOHN KEELES HOTELS)
by shameen Tue Jul 09, 2019 1:48 pm

» BFN BFN BFN ගොන් කම අත ඇරල ටික කාලයක් අල්ලන් හිටියනම් ඔක්කොමලා ගොඩ BFN BFN BUY AND HOLD -
by prabath Tue Jul 09, 2019 12:19 pm

» 10 Deadly Trading Mistakes!
by ipo Tue Jul 09, 2019 10:15 am

» AIA Insurance Payment Method @ 2500/= per share
by Capton KIng Cool Tue Jul 09, 2019 9:16 am

by ipo Mon Jul 08, 2019 11:17 pm

by ipo Mon Jul 08, 2019 11:12 pm

» Regarst to 8 FINANCE Copmany's to be closed But no body knows excatly but avoid SFL,and MFL
by samaritan Mon Jul 08, 2019 8:01 pm

by nuwanmja Mon Jul 08, 2019 2:02 pm

» Sri Lanka Shares Surge As Gov't Flags Projects & Rupee Steady
by samaritan Mon Jul 08, 2019 1:33 pm

» Tommorow's winning encounters
by Cma Sun Jul 07, 2019 10:57 pm

» Buy GHLL.N0000 Galadhari Hotels
by Teller Sat Jul 06, 2019 3:47 am

» BALA can come down to 9/-
by Teller Sat Jul 06, 2019 3:38 am

» 10 Golden rules os investing in stock market
by Capton KIng Cool Fri Jul 05, 2019 3:56 pm

» DIST.N0000
by Bdcdman Fri Jul 05, 2019 9:48 am

» Guys Look for DPL@5.20
by sanjulanka Fri Jul 05, 2019 8:04 am

» Reasons for market to crash
by mahasona2 Fri Jul 05, 2019 7:52 am

You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market Talk » Banana republic central bank

Banana republic central bank

Go down  Message [Page 1 of 1]

1Banana republic central bank Empty Banana republic central bank on Mon May 06, 2019 4:20 pm


Manager - Equity Analytics
Manager - Equity Analytics
Sri Lanka's soft-pegged Central Bank has made a 137 billion rupee profit by busting the currency from 153 to 182 to the US dollar in 2018 in the course of following polices involving real effective exchange rate targeting and printing money to keep rates down.

A soft-pegged Central Bank is the most dangerous monetary authority compared to others that follow non-contradictory policy such as hard pegged agencies or fully floating ones.

A soft-pegged currency collapses because the Central Bank implement deploys implicit or explicit weak side convertibility undertakings (defending a peg) but resists the credit system from adjusting to the interventions by printing an almost equal amount of money (sterilising the forex sales) to keep rates down.

The currency would continue to fall until the Central Bank either floats, ending printing, or allows rates to go up, slowing credit. In Sri Lanka both happen, in what analysts have called 'rawulath ne kendeth ne' (neither the beared nor the soup is saved) outcomes.

The people and businesses then have to recover from the effects of both a credit slowdown and the currency collapses, which slashes the real capital available for re-investment when the credit recovers.

In 2019, the Central Bank also forced a cut in deposit rates, further hurting savers.

The Central Bank booked a gross 146 billion rupee nominal profit on its foreign assets as the rupee collapsed, due to money printing in 2018 as the rupee collapsed.

The Central Bank also earned 8.9 billion rupees printing money into the banking system to sterilize interventions. In the 2018 crisis, most of the money was printed through term reverse repo deals.

The Central Bank earned 25.5 billion rupees on its reserves.

Interest income from foreign reserves or capital gains from the liquidation of foreign assets is the only way a pegged Central Bank can earn profits (seigniorage) without causing harm to the people, businesses, and the nation at large.

All other profits are inflationary including gains from the rupee collapse. In 2017, the first year since mid 2014 when Sri Lanka had moneary stability, the bulk of 48 billion rupees of profts came from foreign assets.

A soft-pegged Central Bank's profits fall when there is low inflation and can even make losses due to sterilization (mopping up) costs. Currency appreciation can also generate 'losses'.

In 2018, the Central Bank also lost a part of the foreign income due to swaps, which are convertibility forward market convertibility undertakings given to borrowers in foreign currency, in a quasi-fiscal activity.

There have been calls to bring strict monetary rules to prevent the Central Bank from generating monetary instability and criminalize the most dangerous tools or actions of the Central Bank including liquidity shocks, becoming counter-party to Soros-style swaps and floating-with-excess-liquidity.

Under its underlying monetary law, which was developed to take Sri Lanka to the Bretton-Woods system of failed soft-pegs in 1950 ending a hard peg, the 'profits' from currency collapse cannot be transferred to the government.

The real value (external) of Central Bank assets remain unchanged when the domestic currency collapses against a reserve or anchor currency.

Under the monetary law act, there was a 20 billion rupee loss in 2018. About 11 billion rupees came from a transfer to a pension fund for Central Bank workers.

In the profit and loss account, another 7.1 billion rupees were paid as salaries and other benefits to workers.

At the time Sri Lanka dissolved its hard peg, where the balance of payments determined the domestic money supply, it was illegal to print money to resist the balance of payments and generate a crisis.

Countries that suffered most from second class pegs like Sri Lanka include those in Latin America.

"This law had been drawn up under American tutelage and along the lines that have been the subject of experiment in certain Latin American countries for some eight years past," Britain's Banker Magazine wrote prophetically in July 1950 soon after the soft-pegged monetary law was passed in then-Ceylon.

"The step from an 'automatic' currency system (such as he which Ceylon inherited with is Colonial Currency Board) to an ultra-modern 'managed' currency system is necessarily fraught with great dangers and there may be some who will regret that Ceylon has decided to run such risks at this time."

At the time of independence, the currencies of India, Ceylon, Maldives, Nepal, Mauritius, Dubai and several gulf countries were around 4.70 to the US dollar either through outright 'dollarization' of the Indian rupee or through currency boards (hard pegs).

Singapore's first finance minister Goh Keng Swee said the country decided to preserve the 'strange anachronism' from the Colonial era because printing money led to balance of payments troubles.

READ MORE: Why Singapore chose a currency board over a central banK

Singapore later modified its currency board law to allow its money to appreciated when the US Fed had bad policy. The Singapore dollar is now at 1.2 to the US dollars from 3.06 at the break up of Bretton Woods in 1971.

The currency of Dubai, a financial centre that does not operate fancy monetary policy is at 3.67 from the 4.76 in Indian rupee days. Gulf countries abandoned the rupee after the Reserve Bank of India was mis-used to print money for the Nehru administration's 5-year plans.

Sri Lanka's rupee fell from 4.76 to 5.96 to the US dollar in the latter stages of Bretton Woods partly due to a balance of payments crisis on Sterling and has fallen to 176 so far.

With tinkering of Maldives Monetary Authority Law to enhance its lender of last resort facilities the Rufiyaa has also come under pressure. Its most recent fall was to 15.3 to the US dollar from 12.8.

The Maldives, with greater monetary stability, has been able to boost per capita income to about 11,000 US dollars

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum