THE CENTRAL BANK

The central bank of sri lanka is the main institution in the financial sector in sri
lanka. It was established in 1950 under the monetary law act no. 58 of 1949 as a
independent body and is governed by a five member monetary board. It consists
with,

1. The governor
2. The secretary to the ministry of finance (ex-officio)
3. Three non-executive members.

The central bank of sri lanka focus to achieve and maintain two core objectives to
maintain a healthy and stable economic and financial system while maximizing
resource utilization effectively. These objectives are:

1. The maintaining of economic and price stability

2. The maintaining of financial system stability

The Monetary Law Act has also granted the central bank sole authority to issue
currency notes and coins to the public. Therefore, the bank is responsible for
currency issuance and management.

The central bank is advisor on economic affairs and banker to the government of
sri lanka .As agent to the government he central bank is tasked with managing the
employees’ funds, managing the country’s public debt, providing exchange control
services and administration of foreign and government funded credit schemes to
enhance access to finance for regional development.

The governor of the the central bank functions as its chief executive officer while
the senior management consists of the senior deputy governor, deputy governors,
assistant governors and heads of departments in addition to the governor. The bank
consists of 30 departments headed by a director or its equivalent and 6 regional
offices headed by a regional manager. Apart from the internal audit department and
financial intelligence unit which report directly to the governor, all other
departments report to the governor or deputy governor through an assistant
governor.
EXCHANGE RATES

Exchange rate is the value at which one currency may be converted into another.
The exchange rate is used when simply converting one currency to another such as
for the purposes of traveling to another country, or for engaging in trading in the
foreign exchange market. There are variety of factors which influence the
exchange rate, such as interest rates, inflation, and the state of politics and the
economy in each other countries.

In finance, an exchange rate also known as a foreign-exchange rate, forex rate, fx

rate.. It is also considered as the value of one country’s currency in to another
currency. exchange rates are determined in the foreign exchange market, which is
open to different types of buyers and sellers 24 hours a day except weekends. The
spot exchange rate refers to the current exchange rate. The forward exchange rate
means to an exchange rate that is locked and traded today but for delivery and
payment on a specific future date. In the retail currency exchange market, a
different buying rate and selling rate will be quoted by money dealers(financial
institutions). Most trades are come from the local currency. The buying rate is the
rate at which money dealers will buy foreign currency, and the selling rate is the
rate at which they will sell the currency. The difference of the rates will
incorporate an profit for a dealer's in trading, or commission.

US DOLLAR APPRICIATION AGAINST SRI LAANKAN RUPEE

This indicates the US Dollar SPOT Exchange rate of all actual USD/LKR SPOT
transactions executed throughout the previous business days in the domestic inter-
bank foreign exchange market in last year and present months.

The Sri Lankan rupee has depreciated against the US dollar on several occasions
from last year June to then on this year June, when its value standed at Rs. 159.82.
Reports that the value of the rupee was falling again began the week of octomber
17, when it was at Rs. 163.1284, and continued to increase up to now, where it
now stands at Rs. 176.71 against the dollar. it is 9.1% of depreciation per year.

In the past few months, everyone in the country reported currency depreciation.
Reactions on social media and general media indicate that there is an huge impact
to the debts from this depreciation and also this has become a topic in the political
manner.
When considering about past years from 2015 to 2019 there is 9.1%, 32 Rupees
averageable depreciation occurs for 5 years. general media exposed that there is
huge impact for few sectors like national debt, fuel price adjustments, strongness
of the economy etc.

In the opinion of national debt payments there is a currency mismatch. In that

Central bank borrow debts in dollars then generate rupees and pay back debts in
dollars. Therefore when debt increases in rupee terms, it doesn’t make an impact in
terms of debt repayment in dollars.

The currency depreciations occurs due to, increase in domestic price of imports
and increase in local inflation, reduction in trade-competitiveness in international
market. However, exporters willing to depreciation very much because it increases
local currency proceeds of exports that will help their export industries. The
countries who experience appreciation of their currencies also do not like it for
long because import rises due to cheaper imports will adversely impact on local
industries and balance of payments.
JAPANESE YEN APPRECIATION AGAINST SRI LANKAN RUPEE

Japan’s main relationship with Sri Lanka dates back to 1952, when Japan
established diplomatic relations with Sri Lanka .Since then, Japan has been a long-
time partner in Sri Lanka’s socio-economic development as well as in the process
of peace establishment. Japan has also specially provided relief and reconstruction
assistance for conflict affected communities and those affected by natural disasters
such as floods, droughts and tsunami.

Japan has engaged in the major projects in sri lanka. such as

 The Construction of the Bandaranayake International Airport - Rs. 20.7
billion
 Baseline Road - Rs. 12.5 billion
 Expansion of the Colombo Port - Rs. 130.6 billion
 Southern Transport Development Project - Rs. 60.7 billion
 Provincial/Rural Roads Development Project - Rs.17.8 billion
 New Mannar Bridge and improvement of the Causeway - Rs. 3.1 billion
 Upper Kotmale Hydro Power Project - Rs. 63.3 billion
 Vavuniya- Killinochchi Transmission Line - Rs. 4.5 billion

This indicates the Japanese yen SPOT Exchange rate of all actual JPY/LKR SPOT
transactions executed throughout the previous business years in the domestic inter-
bank foreign exchange market in last year and present months.
The Sri Lankan rupee has depreciated against the Japan Yen on several occasions
from last year octomber to then on this year June, when its average value stood at
Rs. 1.5184. Reports that the value of the rupee was falling again began the date of
October 26th 2018, when it was at Rs. 1.5467 , and continued to increase up to
now, where it now stands at Rs. 1.6427 against the Yen. it is 6.20 % of
depreciation per October 2018 to June 2019.

The reason behind for this depreciation is, Japan is the fourth largest import
sourcing countries, accounting for 7.1 % of total imports, respectively. Expenditure
on imports from Japan raised significantly by 52.6 % to US dollars 1,585 million
in 2018, while increasing its share of total imports to 7.1 % from 4.9 % in 2017,
mainly due to the considerable growth registered in vehicle imports. Import
expenditure on Japanese vehicles accounted for around 62 % of total imports from
Japan and 62.4 % of vehicles imported to Sri Lanka in 2018.
EURO APPRECIATION AGAINST SRILANKAN RUPEE

This indicates the EURO SPOT Exchange rate of all actual EUR/LKR SPOT
transactions executed throughout the previous business days in the domestic inter-
bank foreign exchange market in last year and present months.

The Sri Lankan rupee has depreciated and appreciated against the euro on several
occasions from last year September to then on this year June, when its value stood
at Rs. 189.7346. Reports that the value of the rupee was falling again began the last
week of september, when it was at Rs. 198.5714, and continued to increase up to
210 on January 2019 and decrease up to now, where it now stands at Rs. 199.6796
against the euro.

When considering about past year from 2018 to 2019 there is 7.76 %, 14 Rupees
averageable depreciation occurs for a 1 year. general media exposed that there is
huge impact for few sectors like national debt, imports and exports, strongness of
the economy etc.
 The depreciation of the Sri Lankan rupee against several major currencies resulted
in an increase in the total debt stock, in rupee terms, by Rs. 1,063.2 billion at end
2018. The Sri Lankan rupee depreciated notably by3.8% since last few years. Total
European debts increases year by year.due to that reason money supply increases
upto the debt amount of euro.then increase in local inflation cannot control.

Years 2015 2016 2017 218

Euro (Rs 181,084 183,561 208,075 225,831
millions)

And also the currency depreciations occurs due to, increase in domestic price of
imports and increase in local inflation, reduction in trade-competitiveness in
international market.