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Saturday, March 25, 2023

Public sandwiched between Central Bank rate and market rate – The Morning

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By Yakuta Dawood  

It has become impossible to purchase dollars at Rs. 203, the Central Bank of Sri Lanka regulated rate, with Licensed Commercial Banks compelled to give priority to essential goods, oil, medicine, and education due to the shortage of USD in the country. 

The black market rate of the USD has now shot up to Rs. 260-270, with the Central Bank remaining adamant in its decision not to float the rupee. As a result, discouraged workers are not sending remittances to Sri Lanka, leading to January remittances hitting a 13-year low. 

Industry concerns

Speaking to The Sunday Morning Business, the chairman of an electronic retail store in Sri Lanka, who wished to remain anonymous, stated that obtaining US Dollars from banks or opening a Letter of Credit three to four months ago was possible, but in the present situation, it was no longer viable to obtain any assistance from banks. 

“The only available option for us to operate right now is to purchase US Dollars from any exchange rate shops operating in the country, but that is also not possible because $ 1 is being sold at Rs. 265, which means I have to spend more than Rs. 500 for just $ 2,” the chairman said. 

The chairman further stated that if there was no assistance by the local banks or if the black market rates moved a lot higher than the Central Bank rate, they would be forced to close operations within the next few months. 

The Sunday Morning Business also spoke to another owner of a Small and Medium-sized Enterprise, which sells high-quality imported floor rugs. Commenting on the present situation, the founder of the business said that they were now in the process of “finding alternative items to sell” instead of continuing their business, which has been operating for over two decades. 

“Obviously, continuing our business at this time is not possible. Market rates are too high to even consider purchasing, hence we have temporarily shut down our key sales and are looking at other alternatives to make a living here,” the owner said. 

The owner further stated that all members of the family had already applied for international opportunities, with a long-term plan of permanently shifting out of Sri Lanka and starting a new life, continuing the business in another country. 

“Day by day, the situation is getting worse. This is why moving out of Sri Lanka with the family and restarting business in another country seems more promising.”

Concerns surrounding overseas travel

Speaking to The Sunday Morning Business on conditions of anonymity, an individual who recently travelled to Dubai as a tourist stated that the most pressing problem was finding US Dollars at the CBSL-approved rate.

Highlighting a recent incident, the individual said that the bank with which he had been banking for over a decade had refused to provide US Dollars beyond $ 400, resulting in him having to go to an exchange rate dealer for the remaining funds he needed.

“As unfortunate as it was, I had to purchase the US Dollar at Rs. 263 after bargaining,” he revealed.

Another individual who recently travelled to Iraq told The Sunday Morning Business that the “most annoying but saddening” incident was how some banks operating in Sri Lanka were willing to grant at least a minimum amount of US Dollars (based on the number of days of travel) for those touring abroad, but others would refuse outright despite continuous requests.

Elaborating, the individual, who wished to remain anonymous, stated that it was upsetting how they bank they were dealing with had refused to grant even the minimum amount of US Dollars, despite requests being made for over six weeks. 

“Other people who travelled with me were able to get together some dollars, but until two days before departure, I did not have US Dollars with me as I trusted the bank would grant my request. However, it did not do so and I had to obtain dollars from the exchange rate dealers, which was very expensive and way out of my budget.”

The individual added that such incidents that occur prior to an international journey ruined all plans and excitement surrounding the trip because they would constantly be worrying about obtaining US Dollars at bank-approved rates amidst all other challenges. 

Do authorised dealers sell $ at Rs. 203?

The Sunday Morning Business also investigated whether CBSL-mandated exchange rate dealers in the country were selling at the bank rate and uncovered that they were not doing so.

The rates for $ 1 as per the findings on 25 February 2022 were as below: 

Authorised money changer 1: Rs. 245

Authorised money changer 2: Rs. 259

Authorised money changer 3: Rs. 265

Authorised money changer 4: Rs. 255

(Names are not revealed here as the questionnaires were conducted anonymously as a general consumer.)

Upon being asked why the rate was not Rs. 203, the authorised money changers responded: “Just because we are authorised by the CBSL, it does not mean we have to follow it because the market rate is much higher than Rs. 203.”

Meanwhile, CBSL Governor Ajith Nivard Cabraal speaking to The Sunday Morning Business denied that authorised dealers were able to sell US Dollars above the pegged rate at Rs. 203, adding that the bank was “already taking action against some of them”. 

On 9 December 2021, the CBSL issued a press release stating that the Central Bank was conducting a series of spot examinations at the places of authorised money changers, “thereby strengthening the monitoring and supervision of the authorised money changers”.

According to the press release, the following authorised money changers had not complied with the directions issued to them under the provisions of FEA in the months of November and December 2021.

  1. New Natasha (Pvt) Ltd. at No. 12, Super Market Complex, Wennappuwa
  2. George Michael Holdings (Pvt) Ltd. at No. 157, Chilaw Road, Wennappuwa

iii. Royal Money Exchange (Pvt) Ltd. at No. 55, Galle Road, Colombo 6

  1. Prasanna Money Exchange (Pvt) Ltd. at No. 57, Galle Road, Colombo 6

The press release further noted that if the errant authorised money changers failed to rectify the issues communicated through the Notices, the CBSL would be compelled to suspend and revoke their permits.

“The general public is also informed that authorised money changers have no authority to transact foreign exchange at rates higher than those offered by the banks to such money changers,” the press release further added. 

CBSL attempts crackdown

Despite the measures implemented by the CBSL to tackle the increasing influence of the local foreign currency kerb market, which included the introduction of an incentivised exchange rate of Rs. 210 and threats of legal action against those engaging in foreign currency exchange through unofficial channels, it appears that the kerb market has continued to flourish, offering exchange rates as high as Rs. 260.

Speaking to The Morning Business on 28 February, a source with intimate knowledge of foreign currency dealing in the kerb market pointed out that the premium offered by the kerb market had increased to around Rs. 40-60, from Rs. 30-40 before December 2021. This came on the heels of the CBSL introducing its carrot-and-stick policy in early December 2021 to tackle the issue of decreasing foreign worker remittances earned through official channels and increased reliance on unofficial channels such as ‘undial’ or ‘hawala’.

He further stated that there was no discernible decrease in the availability of US Dollars in the kerb market, highlighting that the CBSL crackdown on illegal money-lenders had failed.   

Pegging the USD at Rs. 203 has resulted in Sri Lanka recording its lowest foreign worker remittances over the past 13 years, with remittances falling 61.6% year-on-year (YoY) to $ 259.2 million from $ 675.3 million in January 2021. 

In terms of Sri Lankan Rupees, remittances in January 2022 fell to Rs. 52.2 billion from Rs. 128.6 billion in January 2021, a decrease of 59.4% YoY.

In a bid to increase foreign worker remittances, Minister of Labour Nimal Siripala de Silva stated in Parliament on 8 February 2022 that he made a request to the Treasury to grant an incentivised exchange rate of Rs. 240 per US Dollar for foreign workers remitting money to Sri Lanka. 

Moreover, on 28 February 2022, CBSL issued a press release affirming that “only” authorised dealers (i.e. licensed banks) and money changers appointed by CBSL would have the permission to buy, sell, and exchange foreign currency in Sri Lanka. 

The press release stated: “In terms of the provisions of the Foreign Exchange Act, No. 12 of 2017, engaging in foreign currency transactions without permission of CBSL by any person, institution or any other entity is an unlawful activity.”

The CBSL also requested the general public to inform its Foreign Exchange Department of any such incidents occurring in the country. 



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