News
Lanka should set up a currency board to stop rupee depreciation: US economist
ECONOMYNEXT – Sri Lanka should set up a currency board to stop further currency falls, US economist Steve Hanke has said as the island’s currency collapsed from 203 to 290 to the US dollar in an attempt to float the currency which has not yet succeeded.
“Since January 1st 2022, the Sri Lankan rupee has depreciated ~26% against the USD. #SriLanka’s severe balance of payments crisis and recent fuel price hikes are sinking LKA,” Hanke, who is professor of Applied Economics at Johns Hopkins University in Baltimore, said in a twitter.com message.
“To ease the crisis, LKA needs to install a currency board, like the one it had from 1884 until 1950.”
Sri Lanka – then Ceylon – set up the currency board after the Ceylon Rupee issued by the Oriental Bank Corporation stopped exchanging silver for rupee notes, technically called a suspension of convertibility.
A modern day central bank attempts a float also in a similar fashion, though the bank is not closed.
A currency board is easy to set up and will end balance of payments trouble for ever, insulating the public and also politicians from Keynesians who print money to manipulate interest rates.
Currency boards have very low interest rates just about 50 basis points higher than the anchor currency by automatic tightening to prevent imbalances from building up.
The anchor currency for the currency board can be the US dollar, Euro, Swiss Franc, Swedish Kroner or Singapore dollar, which is among countries with the best monetary policy in the world.
Hanke has prepared a handbook on how to set up a currency including measures for war torn countries where the monetary authority could be incorporated abroad to prevent any warlord from getting hold of reserves.
In 2018 Sri Lanka was put on the extraordinarily situation of a ruling politician, then-Minister Harsha de Silva, pleading with central bank in public, to raise rates in a bid stop money printing, after giving it full operational independence to inject liquidity.
At the time taxes raised taxes to reduce the deficit and a political costly price formula or fuel was set up, but money was printed to create balance of payments trouble by so-called ‘call money rate targeting’.
Money was also injected through dollar rupee swaps of the style used to bust East Asian pegs during the crisis by speculators (Soros style swaps). Speculators could not break the Hong Kong currency board during the East Asian currency board, but instead mad massive losses on swap costs.
In 2020 the policy was taken several steps ahead by crippling bill and bond auctions with price controls. Now the rupee has been hit by a surrender rule, analysts have warned.
Analysts have called for strict laws to block the ‘domestic operations’ of the central bank through which balance of payments troubles are created, or set up an orthodox currency board.
When the Oriental Bank Corporation shut its doors in 19th century Ceylon, the Mercantile Bank which also issued notes provided convertibility at par.
Oriental Bank Corporation ran out of silver reserves following bad loans. A modern day central bank runs out of dollar reserves due to direct government financing of deficits, re-financed credit schemes and sterilized interventions or giving reserves for imports.
The central bank of Sri Lanka today holds over two trillion in Treasury bills a part of which was taken back from banks in the course of private sector finance to maintain a policy rate or price controls of bond auctions.
Sri Lanka’s currency board, which had kept the island safe through two World Wars and a Great Depression was replaced with a Latin America style central bank under US technical advice in 1950.
Almost all such central bank by Fed experts have led to social unrest and some central banks have collapsed and led to spontaneous dollarization.
Analysts have warned it may happen in Sri Lanka as well if the float is not established.
Currencies are depreciated by Keynesian interventionists for ‘competitive exchange rates’, which critics say is a merciless a zero-sum policy of transferring wealth from the working class to shareholders of export or import substitution companies by destroying real wages.
The advantage remains until workers go on strike demanding higher wages and until utility prices such as electricity, power or water rates are raised.
Knowledge of currency boards have been lost to most post World War II ‘economists’ who relentlessly favour depreciating currency central banks, through which they try to boost growth with ‘stimulus’ create balance of payments trouble, starve the poor, create social unrest, boat people, and bring down governments.
The rising world food and commodity prices hurting the poor around the world while strengthening the hands of authoritarian leaders of natural-resource rich countries after the US and ECB printed vast amount of money is the latest example analysts say.
Steve Hanke was one of the few economists in the world who correctly warned that Fed’s Jerome Powell would set off an inflationary spiral.
Hanke has helped set up several currency boards including in Eastern Europe.
Currency boards have neutral policy and are still in use in East Asia. However most East Asian pegs including Vietnam are tighter than currency boards and collect forex reserves exceeding the monetary base.
Sri Lanka used to have a 1 to 1 currency boar with the Indian rupee (which was originally silver) along with Mauritius and other South Asian nations.
Before the Reserve Bank of India was nationalised to print money for Nehru’s Gosplan style programs, the Indian rupee was also used in the Middle East countries like Dubai.
The only economist who opposed Nehrus economists was a lone classical economist, BR Shenoy who issued a note of dissent on the plans which were to be financed with central bank credit.
Bhutan still retains it one to one peg with the India rupee which has been unbroken for decades. Nepal has also kept a 1.6 peg with the Indian rupee for more around 40 years. The Indian rupee is however a depreciating currency and neither country benefits much except avoiding currency crises.
The IMF supports Maldives peg with the US dollar but encourages stimulus, open market operations and depreciation in larger countries like Sri Lanka which is believed to due to a mis-understanding about pegs held in the US Treasury.
Latest News
Construction of Accident and Emergency unit at Mannar District General Hospital begins under President’s patronage
Construction work on the Accident and Emergency Unit at the Mannar District General Hospital commenced this morning (16) under the patronage of President Anura Kumara Dissanayake.
The Accident and Emergency Unit, which is being constructed at a cost of Rs. 600 million with a grant from the Government of India, will be equipped with all modern facilities and will further expand healthcare services for the people of Mannar. Construction is scheduled to be completed in the first quarter of 2028.
Upon completion of the project, the people of Mannar will be able to receive emergency trauma care and other specialised healthcare services without having to travel to Colombo or other major cities. At the same time, the Government has taken steps to provide the Mannar District General Hospital with the medical equipment and staff required to support these services.
President Anura Kumara Dissanayake, who attended the commencement of construction work on the Accident and Emergency Unit, also engaged in a cordial conversation with members of the hospital staff.
Addressing the ceremony held thereafter, Minister of Health and Mass Media Dr. Nalinda Jayatissa said that as the Mannar area, which is expected to make an important contribution to the national economy, develops, this project will help ensure quality healthcare services for its people. The Minister further emphasised that, in creating a “A Thriving Nation – A Beautiful Life”, the Government is committed to ensuring healthy and disease-free lives for all 21.7 million citizens of the country.
Further remarks by Minister of Health and Mass Media Dr. Nalinda Jayatissa
“The Mannar District is an area that is expected to make an important contribution to our national economy. A large number of local and foreign tourists will visit this area both now and in the future.
With the development of transport facilities, Mannar will experience further economic growth. In such a context, upgrading the services of the Mannar hospital will be important in ensuring quality healthcare services for the people of this area as well as those who visit the region.
Accordingly, construction of this Accident and Emergency Unit will be completed and the facility will be made available to the public in the first quarter of 2028. In addition, staff quarters for doctors at the Mannar District General Hospital are being constructed in a four-storey building at a cost of Rs. 243 million. These construction activities are also expected to be completed within one and a half years. Construction of the new Paediatric Unit, being built at a cost of Rs. 230 million, is also expected to commence within this year.
Similarly, the CT scanner that you have been continuously requesting will be provided to you by around February next year. It is worth approximately Rs. 250 million. While these building facilities are being developed, we will also provide the staff required by the hospital. You have also received intern medical officers for the first time in the history of this hospital. Several more intern medical officers will be assigned to you this October. At the same time, steps are currently being taken to address the shortage of specialist medical officers.
On 31 October, we will recruit 2,600 new nurses, and a portion of them will be assigned to this hospital. Personnel required for the allied health professions are also currently undergoing training. Once their training is completed, the services of several of them will be made available to this hospital. In addition, we will recruit 1,100 Public Health Midwives, a portion of whom will also be assigned to this area.
This Government is taking numerous measures to provide people with healthy lives. Through these initiatives, we hope to improve the health and quality of life of the people in this area.
More than Rs. 600 billion has been allocated to the Ministry of Health over the past two years, and the President continuously monitors all its projects. Going beyond that, I am deeply grateful to the President for joining us today.
We have received the support of the Government of India for this project. I extend my special appreciation to the Government of India, including the Prime Minister, and its people, as well as to the High Commissioner of India and his staff, who have been committed to coordinating these activities and ensuring the success of this project.
Among district hospitals, the Mannar hospital is one with very limited facilities. Despite these shortcomings, I appreciate the dedication of all members of the staff, including the doctors, who remain committed to providing the best possible service to the people. I also consider the President’s visit to be a recognition of your service.
Two years ago, on 21 September 2024, the people of this country gave a clear mandate to create a “A Thriving Nation – A Beautiful Life”. That mandate was further strengthened in November 2024. Under the mandate to create a “A Thriving Nation – A Beautiful Life”, we have been entrusted with the responsibility of ensuring healthy and disease-free lives for all citizens of this country.
Your area of residence, profession, wealth or ethnicity is of no relevance to us in this regard. The Government’s objective is to create a beautiful life through healthy and disease-free living for all 21.7 million citizens of Sri Lanka.”
High Commissioner of India Santosh Jha:
“The agreements for the emergency unit in Mannar and the medical ward complex in Mullaitivu were signed under President Dissanayake’s leadership. I am happy to see these commitments transitioning smoothly into swift implementation.
His Excellency the Prime Minister of India, Shri Narendra Modi, has said that the development assistance extended by India to Sri Lanka comes with a deep sense of responsibility, a duty that one naturally feels for one’s family member.
We remain firmly committed to working closely with the Government of Sri Lanka and the people of Sri Lanka for the well-being and prosperity of all communities across the island. As neighboring countries and close partners, we will continue to walk together this shared path toward lasting progress and development of our peoples.”
Secretary to the Ministry of Health and Mass Media Dr. Anil Jasinghe
“For several decades, injuries and accidents have been the leading cause of hospital admissions in Sri Lanka. As Mannar is geographically somewhat isolated, it is extremely important for the district to have access to quality, free healthcare services without delay.
The assignment of intern medical officers to this hospital commenced this year. Arrangements are also currently underway to purchase a CT scanner for the Mannar District General Hospital. The hospital is expected to receive improved radiology facilities by the end of this year or the beginning of next year.
I must say that, during my 36 years in public service, last year was the only period during which I did not face any financial difficulties in carrying out my duties. The prudent macroeconomic management of the current Government, including President Anura Kumara Dissanayake, has created the fiscal space required to develop the country’s health services.”
Mannar District Bishop Rt. Rev. Gnanapragasam Anthonipillai, Northern Province Governor Nagalingam Vethanayahan, Members of Parliament representing the Mannar District, Secretary to the Ministry of Defence, Air Vice Marshal Sampath Thuyacontha (Retd), Chiefs of the Defence Services, officials of the Ministry of Health, officials of the High Commission of India in Sri Lanka, Consul General of India in Jaffna Sai Murali S. and officials of the Indian Consulate in Jaffna, among others, attended the occasion.
[President’s Media Division]
News
Special Cabinet Subcommittee and Officials’ Committee appointed to address El Niño Climate Impact meet
The Special Cabinet Subcommittee and Officials’ Committee appointed to take necessary measures to address the impact of the El Niño climate phenomenon met for the fifth time at the Presidential Secretariat on Monday (14) afternoon , under the chairmanship of Minister of Environment Dr Dhammika Patabendi.
As the El Niño climate impact is expected to transition from the current dry conditions to wetter weather over the next two months, the committees held an extensive discussion on measures to address the anticipated change in weather conditions.
The committees decided to raise public awareness on potential disasters, including floods and landslides that could occur due to increased rainfall. Attention was also given to conducting disaster preparedness drills to familiarise the public with the appropriate measures to be taken in the event of such emergencies.
It was instructed that initial preparedness drills be conducted in the districts of Kandy, Badulla, Matale and Nuwara Eliya, which are considered vulnerable to landslides and that the necessary measures be taken without delay.
The meeting also decided to implement a public awareness programme through electronic and print media. Discussions were also held on the importance of preparing the public in advance by establishing operational centres at Divisional Secretariat level.
In addition, the committees reviewed the progress of relief measures already being implemented for people affected by the prevailing El Niño conditions, as well as the progress of the planned measures ahead.
Minister of Housing, Construction and Water Supply Dr Susil Ranasinghe, Minister of Plantation and Community Infrastructure Samantha Vidyaratne, Secretary/Convener of the Special Cabinet Subcommittee, Chairman of the Officials’ Committee and Chief of Staff to the President Prabath Chandrakeerthi, Secretary to the Ministry of Agriculture, Livestock, Land and Irrigation D. P. Wickramasinghe, Director General of the Department of Meteorology A. L. K. Wijemanne, Director General of the Disaster Management Centre, Major General Sampath Kotuwegoda (retired), Director General of the National Building Research Organisation Dr Gamini Jayatissa, General Manager of the National Water Supply and Drainage Board Engineer T. Bharatheedasan and officials from the relevant institutions were also present at the meeting.
[President’s Media Division]
News
Where is Gnanasara Thera?Police pass buck to court
by Norman Palihawadane
Bodu Bala Sena (BBS) General Secretary Ven. Galagoda Aththe Gnanasara Thera’s whereabouts have remained unknown since the Supreme Court, on Monday, annulled a presidential pardon granted to him in 2019.
Prison officers visited the Thera’s temple in Nawala, Rajagiriya, to take steps to return him to prison to serve the unexpired portion of his six-year sentence. However, monks at the temple had reportedly informed the officials that they were unaware of his whereabouts.
Police spokesman ASP F.U. Wootler said a separate court order was required for the police to trace the Thera, or assist in taking him into prison custody. No such order had been issued so far, he claimed.
Meanwhile, sources close to Gnanasara Thera said he was expected to attend a book launch in Colombo tomorrow (17),
The development follows the Supreme Court declaring the 2019 presidential pardon granted to Gnanasara Thera, by then President Maithripala Sirisena, null and void.
A three-member Supreme Court bench held that the pardon had been granted arbitrarily and violated public trust and principles of natural justice.
Gnanasara Thera had been serving a six-year prison sentence for contempt of court when the then President Sirisena granted him the pardon, in May, 2019. He had served only about nine months of the sentence at the time.
With the pardon annulled, the original sentence remains in force and the Thera is now required to serve the balance of his six-year term.
The Supreme Court ruling has raised questions over the procedure to be followed to return him to prison, with police and prison authorities yet to take custody of him.
-
Sports6 days agoDDS set to lose Test captaincy
-
News6 days agoSri Lanka faces new grid challenge as rooftop solar surges: former CEB GM
-
Latest News6 days agoShafali, Deepti power India into sixth T20 Asia Cup final
-
News4 days agoGnanasara Thero absconding after SC ruling
-
Latest News5 days agoSri Lanka thwart Fatima Sana challenge to secure Asia Cup final spot
-
Features7 days agoLost for 90 years: Rare Goby resurfaces in Jaffna
-
News5 days agoAmmunition cache found in old Kandy bungalow
-
Editorial6 days agoA flight of fancy
