Features

Fixing the dollar exchange rate: A major mistake

Published

4 years ago

2022/02/6

by Romesh Dias Bandaranaike, Ph.D.

Until September last year the US Dollar (USD) – Sri Lanka Rupee (SLR) exchange rate was determined on the basis of a “managed float.” This meant that demand and supply of USD in the market were the primary determinants of the exchange rate. Official (Central Bank) market intervention, by way of sale or purchase of USD in limited quantities, smoothed out any large fluctuations in the exchange rate, when needed.

In September 2021 the Central Bank (CB) set an upper limit of SLR 203 per USD that authorized dealers in foreign exchange, including banks, must adhere to for all foreign exchange transactions. This restriction, now in effect for five months, has had severe adverse impacts on the functioning of the Sri Lankan economy.

Since the demand for USDs has been higher than the supply of USDs at the upper limit of SLR 203 per USD, the CB restriction essentially results in the exchange rate being “fixed” at this rate. Banks have been compelled to address this shortage, by restricting allocation of their inadequate USDs among customers for all permitted foreign expenditures, at this “fixed” rate. The shortage has worsened substantially over the past months. In response, the CB, while stubbornly maintaining the “fixed” rate, has issued a number of additional directives, which have failed to address the adverse consequences of this shortage, as detailed below.

When the demand for a foreign currency exceeds its supply in any country, the fixed official exchange rate does not allow market adjustment to reflect that difference. The natural consequence is the emergence of an alternative market for the currency in shortage, commonly termed a “black market.” Such a black market has recently developed in Sri Lanka with USDs “selling” in excess of SLR 240 per USD compared with the “official” rate of SLR 203.

Migrant Remittances: Sri Lanka’s single largest source of USDs are remittances from migrant workers abroad, primarily in the Middle East. Informal currency transfer arrangements for workers in the Middle East from many South Asian countries (Pakistan, Bangladesh, Nepal, etc.) have been in place for decades, since many such workers did not have bank accounts in their home countries. These arrangements, termed “Hawala” and “Undiyal” are very reliable. Workers hand over foreign currency in the country where they work and the designated person in the home country is given the money in local currency at the agreed exchange rate.

In the past, most Sri Lankan workers did not resort to such arrangements because they had bank accounts in Sri Lanka to which they transferred their foreign earnings at a realistic official exchange rate. With the recent significant price difference between the official and black market rates for the USD, the Hawala/Undiyal arrangements have provided a ready alternate avenue for Sri Lankan workers. As more of these workers became aware of the alternate option, remittances through the banking system have declined precipitously, from USD 600-700 million per month, to USD 200-300 million per month.

The CB tried to reduce this decline by initially offering SLR 2 per USD over the “official” rate for worker remittances, and later an additional SLR 8 per USD. When remittances declined further, the Central Bank tried to “threaten” workers by saying that using alternate methods were illegal and may even be funding “drug dealing.” In November 2021, foreign worker remittances through official channels had declined by USD 340 million compared with November 2020. While the official exchange rate remains misaligned to market demand and supply, this loss will only increase as more workers become aware of alternate avenues. The adverse impact on Sri Lanka’s foreign exchange earnings will be a staggering USD 4 billion per year. This alone should be reason enough to dispense with the “fixing” of the exchange rate.

Export Earnings: With the fixing of exchange rates, exporters have been delaying the repatriation of their export earnings for as long as possible, till the CB is finally forced to succumb to the pressure and let the currency float. The CB has introduced more and more regulations to push exporters to bring back these funds to Sri Lanka and mandatorily convert portions of these amounts to SLRs. Despite all CB regulations, the USDs officially coming into the country from exports is less than if the currency was allowed to find the level at which supply and demand balance.

Tourist Earnings: With better control of the Covid-19 pandemic, tourist numbers have increased substantially in December and January, though not to pre-pandemic levels. When it became apparent that tourists too were converting their foreign currencies into SLRs in the black market, the CB required tourists to pay their bills at all registered tourist hotels and guest houses in foreign currency. The attractiveness of Sri Lanka as a tourist destination depends on the costs incurred by tourists in their own currencies. If they officially receive less SLRs for their currencies than with a realistic exchange rate, this will discourage some fraction of tourists from visiting Sri Lanka, which, in turn, will reduce tourist foreign currency inflows.

Shipping and Airlines: As a result of the severe USD shortage, banks are restricting foreign exchange for local agents of shipping and airlines who seek foreign exchange to pay their principals for services provided, after collecting payments in SLRs from clients. Kuwait Airways has already stopped its flights to Sri Lanka. Others will also reduce flights if not paid for tickets sold or goods air freighted. Shipping lines will soon by-pass Sri Lanka as a destination if not paid for their services. The country will face severe economic repercussions from these trends.

Foreign Investments: The Colombo Stock Exchange indices have grown significantly over the past year, totally on the back of local investors. Foreign investors have been very large net sellers. The original foreign investments were made on condition that the foreign investors could freely convert revenue from sale of shares and from dividends back to the currencies they originally brought in for investments. These sellers now face difficulty when trying to remit their sales proceeds in foreign currencies, because of the shortage. One can only imagine the negative impact this will have on investor confidence and any potential new investments.

“Illusory” Benefit: The most often cited “benefit” of fixing the exchange rate at an artificially low rate is that this would control price increases in imported food and other consumer items. This is an illusion. Many importers can only obtain foreign exchange to import such items in the black market. The rates paid for such exchange is further increased beyond the open market rate because of another CB regulation (see below). When importers persuade banks to open LCs for imports and the banks are late in meeting their obligation to pay the LCs after the goods have arrived in the Port, importers incur large demurrage costs. This increases the final consumer price, even if the LC is paid for at the official exchange rate.

Foreign Currency Grab by CB: The CB has introduced a regulation in terms of which any bank which converts SLRs to foreign currency for one of its clients must give the CB foreign currency equivalent to 25% of the converted amount at the official rate. An importer desperate to obtain foreign exchange for any critical need, such as urgent spares to repair machinery, arranges to pay an exporter having USD a premium above the official rate, if the exporter agrees to bring in USD into the exporter’s local bank at the official rate. The importer then asks the same local bank to open an LC on his behalf and use the funds he has arranged for (although it is brought into the exporter’s account) to pay for the urgent import. Because of the CB’s 25% regulation, the bank typically asks the importer to arrange for an extra 25% beyond the LC amount. This effectively means that instead of paying a premium of SLR 37 (say) over SLR 203, it costs the importer a further 25% (SLR 9.25) per USD to fund his LC. In essence, the CB is now asking importers desperate for foreign exchange to purchase an additional 25% on behalf of the CB and to meet the cost of the premium; effectively a “black market” deal on behalf of the CB!

The CB has also, by decree, forced private banks to allocate a share of their limited foreign exchange for the import of fuel, for vehicles and for operating the CEB’s thermal power plants. LCs for such imports were previously opened through the two state banks, which no longer have sufficient funds for this purpose, because of the fixed exchange rate. This has further reduced the foreign exchange available to private banks to service their own customers.

It is abundantly clear to any person with a modicum of sense, although clearly not to the Central Bank, that its attempts to artificially control the exchange rate by diktat is having a massive adverse impact on the functioning of the economy, without any worthwhile offsetting benefits. Will the CB ever come to its senses and let the USD find its true rate to save the country from further misery?

[The author is an economist with extensive experience at CEO level, in both public and private sectors.]

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Features

Proactive peacemaking becomes a paramount need

Published

20 hours ago

2026/06/4

Sahan Weerasooriya

Wasting wars: Some war-displaced people in Lebanon. BBC

It may be some time before the full impact of food inflation is felt in the West. Until such time the world would continue to keep itself in suspense over whether the Trump administration is in earnest when it seeks to convey the impression that it is backing a negotiated solution in West Asia.

As is usually the case, consumer stress would be one of the final determinants of political change. To the degree to which the average US consumer somehow ‘muddles through’ and puts the food on the table, to the same extent would the Republican sections of the US public in particular be tolerant of the Trump administration’s inconsistent handling of the West Asian war and the main issues stemming from it. That is, there would be no grave popular disaffection and a demand for political change in the short term.

However, the indications are that the Trump administration’s support base is suffering some erosion in the wake of the current economic crisis. While reports indicate that Democratic sections are firming-up their opposition to the political centre, Republican support for Trump is also showing signs of waning, we are given to understand.

The above developments are probably why Trump is on record as having given Israeli Prime Minister Benjamin Netanyahu a ‘dressing down’ recently on his seeming intransigence on the question of giving negotiations a chance in West Asia. The show of displeasure could be really aimed by Trump at containing the impatience of the American public.

However, the current ground situation in the Middle East, particularly the uncontained bloodshed, is likely to impress on the thinking sections of the world that more than temporary political change is needed in West Asia and the US.

A well thought out political solution that addresses all the contentious issues at the heart of the Middle East conflict is what enlightened opinion would demand, and very rightly. Right now, the ‘peace efforts’ initiated by the Trump administration give the impression of being piecemeal solutions at best.

There have been, of course, numerous initiatives in the past aimed at bringing permanent peace to the Middle East. These failed mainly because they did not address in full the root causes of the conflict.

At bottom the Middle East conflict is mainly about race and religious hate bred by socio-economic and material inequalities. For instance, if the Palestinian people were not displaced and deprived of land occupied by them at the time of the founding of the Israeli state, ethnic enmities would not have grown to the current unmanageable proportions.

When addressing the above questions, though, it must be remembered that the Israelis too were a displaced people who were entitled to land and a state of their own in the Middle East. Basically, out of these seemingly irreconcilable and conflicting demands have grown the Middle East imbroglio.

Middle East peace is considerably about reconciling these demands and arriving at a solution that would ensure the creation of two states that would opt for peaceful co-existence thereafter.

As long as the US does not see the need for a non-partisan solution that addresses the needs of both ethnicities and religions and goes all-out, as it were, to have it implemented, the Middle East would continue to bleed.

However, staunching the blood flow through the creation of two states would be only half the job done, though a very important part of it. More pernicious, pervasive and difficult to remedy are the inter-ethnic and inter-religious hatreds that have been unleashed over the decades.

However, if substantial, long-lasting peace is to be fostered in the region the latter ‘demons’ would need to be exorcised from the hearts and minds of the communities concerned. No doubt an uphill task but one that must be undertaken by those who wish the region well.

The UN would need to put its ‘best foot forward’ in such undertakings but it is time that it dawned on the international community and other caring quarters that Middle East peace, and all other such uphill challenges, require proactive peacemaking on the part of all civilized sections for their effective management. That is, public involvement in peacemaking too is a must.

Since hatreds are harboured in the human consciousness the enmities embedded in the latter need to be managed and defused judiciously alongside other undertakings in a peace process. In the case of West Asia, such enmities could be even spread globe-wide besides being multi-dimensional. For instance, it ought to be thought-provoking that Iran is insistent on a peace initiative that would also include Lebanon.

Besides security considerations it is also ethnic and religious affiliations that account for Iran making this demand. For instance, the Shias are a numerically important religious community in Lebanon and they provide a significant number of Hizbollah fighters, who are in a vital sense carrying out a ‘proxy war’ for Iran. It also needs to be factored in that Iran is a Shia-majority country.

Thus trans-border religious affiliations could add to the complexities and enormity of ethno-religious conflicts. However, the task of managing centuries-long enmities needs to be launched and prodded on with by peacemakers since a downing of arms alone would not guarantee substantive peace.

It is not realized sufficiently that the process of ending hatreds begins with mutual apologies by antagonists to a conflict for the harm inflicted on each other. This would be anathema in some ears but there is no getting away from the requirement. It is the vital first step to permanent peace anywhere.

In fact there could be no reconciliation worth speaking of without such mutual apologies. It is a point worth re-iterating in these times when even the government of Sri Lanka is voicing the need for national reconciliation. Well, without the words, ‘I am sorry’, there could be no permanent end to enmities – they would do well to remember.

The above requirements may not go down very well with governments, but they resonate in the hearts and minds of most people, since they are inheritors of religious traditions of some kind.

This is a principal reason why peacemaking works well when publics too are involved in them. The effectiveness of such campaigns increases several fold when they have a Mahatma Gandhi or a Jawaharlal Nehru at their helm. A strong proactive involvement by the public in peace could lead to the emergence of such leaders at some point in these campaigns.

Features

Dialog Brings Sri Lanka’s Largest Digital Vesak Experience to Matara

Published

20 hours ago

2026/06/4

Sahan Weerasooriya

From left to right: Hon. Saroja Savithri Paulraj, Hon. Sunil Handunnetti, and Lasantha Theverapperuma experience the Dialog 5G Ultra-powered VR tours.

Official Digital Partner of the 2026 ‘Dakshina Prabha’ National Vesak Zone

Dialog Axiata PLC, Sri Lanka’s #1 connectivity provider, collaborated with the Ministry of Buddha Sasana, Religious and Cultural Affairs to bring one of Sri Lanka’s largest and most technologically advanced Vesak experiences to the ‘Dakshina Prabha’ National Vesak Zone. The three-day celebration, in Matara attracted more than hundred thousand visitors, who engaged with a series of innovative digital activities powered by Dialog 5G Ultra, including Artificial Intelligence (AI) and Virtual Reality (VR) experiences, digital pandols and a Data Dansala. The opening ceremony was attended by Hon. Sunil Handunnetti, Minister of Industry and Entrepreneurship Development and Hon. Saroja Savithri Paulraj, Minister of Women and Child Affairs, along with distinguished guests and Dialog’s senior management.

One of the key attractions at the venue was the Dialog 5G Ultra-powered Virtual Reality (VR) experience, which attracted more than 35,000 participants. The activation enabled devotees to virtually visit and pay homage to sacred Buddhist sites, including the Jaya Sri Maha Bodhi in India and the Atamasthana in Anuradhapura, directly from the Vesak zone in Matara.

Visitors receive complimentary mobile data through Dialog’s QR-powered Data Dansala.

Dialog also conducted an AI Digital Vesak Greeting Card Competition from 21 May to 01 June 2026, attracting numerous entries from across the country. The shortlisted designs were showcased across 20 large LED screens throughout the venue and across Matara City, and were also made available for download via mobile devices. Further, through the use of AI, traditional Jathaka Katha were reimagined in a digital format, demonstrating how technology can be used to preserve and enhance cultural and religious heritage. Together, these initiatives blended traditional Vesak celebrations with emerging technologies, offering visitors a unique and immersive way to engage with Vesak traditions.

Extending the spirit of Vesak through connectivity, Dialog conducted a special Data Dansala powered by its QR Reload platform, enabling visitors to receive complimentary mobile data by scanning QR codes placed across the venue. In addition to the Matara National Vesak Zone, similar Data Dansala activations were also conducted at the Gangaramaya and Bauddhaloka Vesak zones in Colombo.Visitors also had the opportunity to create personalised Vesak-themed digital photos through an AI Photo Booth, generating AI-enhanced portraits using their own photographs and adding a contemporary digital element to the Vesak celebrations.

Visitors watch AI-generated Jathaka Katha

Commenting on the initiative, Hon. Sunil Handunnetti, Minister of Industry and Entrepreneurship Development, said, “The 2026 Dakshina Prabha Vesak Festival marked the first time AI-powered digital innovations were incorporated into a National Vesak Festival in Sri Lanka. Presenting Buddhist stories and teachings through technology created a new and engaging way for visitors to connect with these traditions. We thank Dialog for supporting this initiative and for working closely with us to bring our vision to life. Their contribution played an important role in making this first-of-its-kind event a reality.”

Lasantha Theverapperuma, Group Chief Marketing Officer of Dialog Axiata PLC said, “We thank the Government of Sri Lanka for the opportunity to support the 2026 Dakshina Prabha National Vesak Festival and for embracing technology as part of this year’s celebrations. As the Official Digital Partner, we were privileged to contribute through our Dialog 5G Ultra and AI capabilities, creating new ways for visitors to engage with Vesak traditions while preserving their cultural significance for future generations.”

Beyond supporting the National Vesak Zone in Matara, Dialog also enhanced the Gangaramaya and Bauddhaloka Vesak zones through a range of digital activations during the Vesak season. The company additionally continued its sustainability initiatives, including the Thirasara Aloka Poojawa, which illuminated rural places of worship through solar-powered lighting solutions.

Features

Beauty, elegance and talent…for women

Published

20 hours ago

2026/06/4

Sahan Weerasooriya

Universal Woman is an international pageant focused on “beauty, elegance, and talent” for women, positioning itself as a platform to shape global ambassadors. The 2026 edition will be held in Cambodia, and Sri Lanka will be there, as well.

According to reports coming my way, contestants, at the international event, will work with industry trailblazers, under international standards.

Sri Lankan supermodel, runway and pageant trainer Chulpadmendra Kumarapathirana, is the National Director for Universal Woman Sri Lanka 2026.

With over two decades in the industry, Chula was crowned Miss Sri Lanka 2006, and has since shaped the next generation of titleholders through her Colombo-based Chulpadmendra Catwalk Studio, widely regarded as one of the country’s leading modelling academies.

The team behind Universal Woman Sri Lanka 2026

A former host of Derana Miss Sri Lanka for Miss World 2008 and a judge for Miss Universe Sri Lanka 2025, Chula now serves as National Director for Universal Woman Sri Lanka 2026, leading the franchise’s search for Sri Lanka’s delegate to the international final in Cambodia.

Applications for Universal Woman Sri Lanka 2026 are being taken, via WhatsApp: 077 659 4994, says Chula.

The judging panel for Universal Woman Sri Lanka 2026 includes Senaka De Silva, Pageant Aesthetic Advisor & Chairperson of the Judging Panel, Angela Seneviratne, Caroline Jurie, Rozelle Plunkett, and Suraj Mapa.

Universal Woman Sri Lanka 2026 officially began its journey with a first round of auditions, held in Colombo, marking the start of an exciting new chapter in Sri Lanka’s pageant industry.

Launching the first round of auditions

The platform aims to empower women while selecting an intelligent, confident, and inspiring representative to compete at the Universal Woman International Pageant 2026 in Cambodia, this September.

Universal Woman Sri Lanka now moves forward with the vision of creating one of the country’s most prestigious and empowering pageants while preparing to crown a queen who will proudly represent Sri Lanka on the international stage.