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Economic Freedoms
17 Aug, 2011 20:50:26
i Lanka central bank relaxes forex controlsSr
Aug 17, 2011 (LBO) - Sri Lanka's central bank has relaxed some exchange controls allowing citizens and foreign residents to engage in a series of forex transactions without seeking permission from the state, improving economic freedoms.
The Central Bank of Sri Lanka said the new moves would "enhance investor confidence, strengthen the foreign reserves in the long run and stabilize the foreign exchange market" allowing Sri Lanka to integrate more closely with the world.
Liberties
Giving effect to an earlier budget proposal, foreigners are now allowed to invest in unit trusts (mutual funds) and foreign nationals resident in Sri Lanka who are paid in rupees will be allowed to convert their money and deposit in forex accounts.
Sri Lankans studying abroad will be allowed to take loans without first seeking permission from the central bank.
A resident Sri Lankan could now buy real estate from a non-resident Sri Lankan without seeking exchange control permission.
Selected 'supermarkets' or self service department stores will be allowed to change foreign exchange for rupees.
Sri Lanka brought draconian foreign exchange controls in 1952 soon after a so-called 'soft-pegged' central bank was created to make the island part of the failed Bretton Woods system.
A soft-pegged central bank tries to target the exchange and interest rates at the same time running into 'foreign exchange shortages' or even severe 'balance of payments' crises.
Such contradictory monetary policy is maintained by exchange controls, abandoning the free flow of capital, a phenomenon economists call the 'impossible trinity' of monetary policy objectives.
Fiat Anniversary
The latest exchange control relaxations are coming as the world commemorates or laments 40 years of inflating fiat paper money, amidst an economic crisis triggered by a key floating rate central bank, the Federal Reserve.
The Bretton Woods system collapses on August 15, 1971 after President Nixon closed the 'gold window' when the dollar fell below 80 dollars an ounce.
The US default on the Bretton Woods and severing the dollar's last links with gold plunged the world into high inflating unbacked fiat paper money. The dollar is now around 1,800 dollars an ounce.
After 1971, many advanced nations with greater monetary knowledge shifted to floating rate fiat money central banks, which only targets an interest rate and have no exchange controls.
Sri Lanka closed the entire economy and tightened exchange and trade controls further crippling the country and pushing unemployment above 20 percent. From 1978 some controls were relaxed.
Several countries moved back to 'currency boards' or hard pegs, which do not target an interest rate but only the exchange rate. They also have free movement of capital.
Some countries in South Asia, East Asia and South America continued with soft-dollar pegs collecting larger-than-needed forex reserves and then running them down to get into balance of payments crises from time to time and keeping various forex controls.
The latest forex relaxation is coming as some pressure is developing on the rupee, due to rapid credit growth which is eating up excess reserves in the banking system.
17 Aug, 2011 20:50:26
i Lanka central bank relaxes forex controlsSr
Aug 17, 2011 (LBO) - Sri Lanka's central bank has relaxed some exchange controls allowing citizens and foreign residents to engage in a series of forex transactions without seeking permission from the state, improving economic freedoms.
The Central Bank of Sri Lanka said the new moves would "enhance investor confidence, strengthen the foreign reserves in the long run and stabilize the foreign exchange market" allowing Sri Lanka to integrate more closely with the world.
Liberties
Giving effect to an earlier budget proposal, foreigners are now allowed to invest in unit trusts (mutual funds) and foreign nationals resident in Sri Lanka who are paid in rupees will be allowed to convert their money and deposit in forex accounts.
Sri Lankans studying abroad will be allowed to take loans without first seeking permission from the central bank.
A resident Sri Lankan could now buy real estate from a non-resident Sri Lankan without seeking exchange control permission.
Selected 'supermarkets' or self service department stores will be allowed to change foreign exchange for rupees.
Sri Lanka brought draconian foreign exchange controls in 1952 soon after a so-called 'soft-pegged' central bank was created to make the island part of the failed Bretton Woods system.
A soft-pegged central bank tries to target the exchange and interest rates at the same time running into 'foreign exchange shortages' or even severe 'balance of payments' crises.
Such contradictory monetary policy is maintained by exchange controls, abandoning the free flow of capital, a phenomenon economists call the 'impossible trinity' of monetary policy objectives.
Fiat Anniversary
The latest exchange control relaxations are coming as the world commemorates or laments 40 years of inflating fiat paper money, amidst an economic crisis triggered by a key floating rate central bank, the Federal Reserve.
The Bretton Woods system collapses on August 15, 1971 after President Nixon closed the 'gold window' when the dollar fell below 80 dollars an ounce.
The US default on the Bretton Woods and severing the dollar's last links with gold plunged the world into high inflating unbacked fiat paper money. The dollar is now around 1,800 dollars an ounce.
After 1971, many advanced nations with greater monetary knowledge shifted to floating rate fiat money central banks, which only targets an interest rate and have no exchange controls.
Sri Lanka closed the entire economy and tightened exchange and trade controls further crippling the country and pushing unemployment above 20 percent. From 1978 some controls were relaxed.
Several countries moved back to 'currency boards' or hard pegs, which do not target an interest rate but only the exchange rate. They also have free movement of capital.
Some countries in South Asia, East Asia and South America continued with soft-dollar pegs collecting larger-than-needed forex reserves and then running them down to get into balance of payments crises from time to time and keeping various forex controls.
The latest forex relaxation is coming as some pressure is developing on the rupee, due to rapid credit growth which is eating up excess reserves in the banking system.
