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Lanka busts US$664mn in ‘reserves for imports’ in two months
ECONOMYNEXT – Sri Lanka has spent 664 million US dollars in providing ‘reserves for imports’ in November and December 2021, as the central bank tried to implement a 200 to the US dollar peg while printing money to sterilize the same dollar sales at fixed interest rate of 6.0 percent.
The central bank bought 61.7 million US dollars from forex markets where compulsory surrender rules have been imposed, creating money, and spent 372.35 million US dollars for imports in November.
In December the central bank bought 71.16 million US dollars from banks and spent 424.7 million US dollars to enforce a peg at 200 and provide ‘reserves for imports’.
A pegged central bank which tries to implement a fixed interest rate has to print money to offset such interventions, injecting new rupee reserves to the banking system as dollar sales from reserves sucks out liquidity from the banking system reflecting the transfer of real wealth out of the country.
Such an ‘unsterilized sale’ will reduce the ability of banks to give new credit and shrink reserve money driving up rates and keeping the exchange rate fixed.
However a soft-pegged central bank re-injects the money into the banking system to ‘sterilize’ the intervention, perpetuating the currency crisis by keeping both interest rate and reserve money fixed.
Central bank data showed that 113 billion rupees had been printed in November.
Sri Lanka’s foreign reserves fell in November. In December reserves were boosted with a swap.
In a remarkable development, Mercantilists and some members of the business community last week called on the central bank to continue to sell reserves which will keep the exchange rate at 200 to the US dollar and default on debt.
The call for reserve sales to enforce the peg came after many businessmen had previously said the 200 to the US dollar peg was not realistic or not market determined.
Due to continued liquidity injections at 6.0 percent and earlier at around 5.2 percent by placing price controls on Treasury bill auctions the credibility of the 200 to the US dollar peg has been lost and people are willing to pay as much as 250 rupees to get the printed money out of the country leading to the emergency of parallel markets.
A float will end the ‘reserve sales’ for imports and consequently also end the need to sterilize the intervention, restore the interbank spot market and balance total inflows with outflows.
As long as reserve sales continue, the liquidity injections also continue (the central bank sells both dollars and rupees to the banking system simultaneously) preventing the credit system from adjusting to the reserve outflow.
However a float also leads to a fall of the currency to a lower level.
Analysts have said that the Mercantilist myth involving sterilized interventions were propagated by John Henry Williams an advocate of the the US dollars as ‘key currency’ in a post-World War II monetary system and others like Arthur Bloomfield, who found instances when gold standard central banks supposedly engaged in sterilized interventions and lived to tell the tale.
Such ideas were rejected in East Asian countries like Singapore, which do not have a fixed policy rate.
“..[W]e wanted to indicated to academics, both local and foreign; that what is fashionable in the West is not necessarily good for Singapore,” Singapore’s economic architect and former Finance Minister Goh Keng Swee said in a landmark speech.
“A perceptive mind is needed to distinguish the peripheral form the fundamental, transient fads from permanent values.”
The entire ‘Sterling Area’ of which Sri Lanka was a member until a US money doctor set up a sterilizing Latin America style central bank was based on this ‘permanent value’.
The US Fed in 1971 under then Chairman Arthur Burns broke a 300 year old gold standard, sterilizing interventions in 1971, after earlier printing money to target an output gap.
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Landslide Early Warnings issued to the districts of Kalutara, Kandy, Nuwara Eliya and Ratnapura
The National Building Research Organisation [NBRO] has issued landslide early warnings to the districts of Kalutara, Kandy, Nuwara Eliya and Ratnapura effective from 0400hrs on 12th June 2026 to 0400hrs on 13th June 2026
Accordingly,
LEVEL I [YELLOW] landslide early warnings have been issued to the Divisional Secretaries Divisions and surrounding areas of Palindanuwara in the Kalutara district, Doluwa in the Kandy district, Ambagamuwa in the Nuwara Eliya district and Pelmadulla, Ayagama, Ratnapura, Godakawela, Kalawana and Nivitigala in the Ratnapura district
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Wife, counsel seek regular access to ex-Spy Chief Sallay held under President’s detention order
Wife of former State Intelligence Chief Maj. Gen. (Retd.) Suresh Sallay has asked CID Director retired SSP Shani Abeysekera to allow her, her family members and lawyers to visit her husband in the National Hospital, Colombo. Sallay’s counsel has also written to Abeysekera, asking for permission to visit the former spy held on a detention order signed by President Anura Kumara Dissanayake.
The text of Manori’s letter: “I respectfully request your assistance in granting me, and my daughter or alternatively my son, permission to visit my husband, Rtd. Major General Suresh Sallay, who is currently at the National Hospital, Colombo.
“As you are aware, my husband is presently engaged in a fast-unto-death campaign. His physical condition and emotional well-being are of deep concern to our family. During this difficult period, the presence and support of his immediate family are extremely important to him.
“I firmly believe that regular visits from me with our daughter or our son would help uplift his spirits, provide him with much-needed emotional strength, and may encourage him to reconsider continuing this course of action. Family support can play a vital role in preserving his mental and emotional health while he remains hospitalised.
“In view of these exceptional circumstances, I kindly request that permission be granted for either me and my daughter or my son to visit him daily during the period of his hospitalisation.
“I would be most grateful for your compassionate consideration of this request.”
“The text of the counsel’s letter: “I write in my capacity as Counsel for Rtd. Major General Suresh Sallay, who is presently under detention and admitted to the National Hospital, Colombo.
As you are aware, Major General Sallay has embarked on a fast-unto-death campaign, giving rise to serious concerns regarding his physical and mental well-being. In these circumstances, it is imperative that I be granted reasonable and regular access to my client during his hospitalisation.
As his legal representative, I have a professional obligation to monitor his condition and obtain instructions from him so that I may accurately apprise the relevant courts of his health status and any developments affecting his rights and welfare. Effective legal representation requires continuous communication with my client, particularly in light of the grave circumstances presently confronting him.
I also wish to respectfully highlight that Major General Sallay has placed explicit trust and confidence in me as his counsel. Indeed, I was the first person he contacted following his arrest.
Given the trust he reposes in me, I believe I am uniquely positioned to engage with him constructively and persuade him to discontinue this campaign and instead place his confidence in the legal remedies and judicial processes available to him.
For these reasons, I respectfully request that I be granted permission to visit my client on a daily basis during the period of his hospitalization.
Such access would not only facilitate the discharge of my professional responsibilities but may also contribute meaningfully towards safeguarding his health and encouraging a resolution through lawful and institutional means.
Yoshitha Rajapaksa, who served as a Lieutenant in the Sri Lanka Navy, has now been summoned to the Commission to Investigate Allegations of Bribery or Corruption next Tuesday (16) for questioning over his participation in a Royal Navy training programme in the United Kingdom outside established procedures.
The Commission is expected to record statements in relation to several complaints received regarding his recruitment and subsequent service in the Navy after he enlisted on December 14, 2006.
According to sources, the investigation focuses on allegations concerning the educational qualifications considered at the time of his enlistment, as well as foreign training opportunities he is said to have received while in service, which are suspected to have been granted in violation of due process.
The Bribery Commission has launched the inquiry under the provisions of the Anti-Corruption Act, officials said.
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