Exchange Control regulations to be abolished

By Gamini Warushamana

Sri Lanka has removed most of the Exchange Control regulations that stunted the country's economy and in the next 4-5 years, the remaining Exchange Control measures will be abolished facilitating business and trade, said the Deputy Governor of the Central Bank, P. Samarasiri at the launch of Lanka Money Transfer, a money transfer system of DFCC Vardana Bank.

He said that Exchange Control originated during the Second World War as a measure taken by governments to protect foreign exchange in their countries.

However, after the war on terrorism ended, most countries removed exchange controls and opened their doors to global business and trade.

“But we, in our part of the world, continued with exchange control and kept our countries out of global business. As a result we have become low income countries,” he said. Exchange Control was relaxed in 1977 and facilitation of global business began again. Through exchange control, current account and capital account transactions had been restricted.

Current account transactions are now fully liberalised and, therefore, there is no exchange control related to exports, imports, services and foreign fund transfers.

Samarasiri said that liberalisation of the capital account was not done quickly because there was a perception of risk.

Capital account liberalisation allows investment to flow in and out. It enables foreign investors to bring capital and do businesses.

“Our investors too can invest in foreign countries and earn profits.

Therefore, removing controls on the capital account is beneficial to the country and the fear and restriction is baseless. In the recent past, control over capital account transactions too was removed but there are some controls yet,” Samarasiri said.

Today, the restriction is on Sri Lankan investors and their investments in real and financial products abroad are under control. The Government is due to remove these remaining restrictions too in the coming 4-5 years and make Sri Lanka a global business centre as envisaged in government policies, he said.

Speaking on Lanka Money Transfer (LMT) remittance system, Samarasiri said that foreign remittances play a key role in the country's economy. Professional and non-professional migrant workers send home the money they earn abroad.

“Since our imports are much higher compared to our exports, Sri Lanka has a huge trade balance. Foreign remittances cover 75-80 percent of the deficit. Thanks to migrant workers our official balance of payments is always in surplus,” he said.

LMT is similar to the Real Time Gross Settlement System (RTGS) of the Central Bank and with the development of IT, financial transactions and trade across borders has become much easier.

The Alibaba e-commerce system launched by a rural Chinese teacher and which made a historic IPO at the New York Stock Exchange is a classic example. LMT can convert easily to a international fund transfer system and banks too are exploring the possibility of introducing new products such as e-commerce solutions, he said.