ECONOMYNEXT – Sri Lanka’s soft-pegged central bank said it is tightening legal tender framework limiting the possession of foreign currency notes to 10,000 US dollars from 15,000 amid the worst currency crisis in the history of the institution.
However holders can deposit foreign currency in a bank and escape the monetary expropriation through depreciation. the deposited money is only returned to bank customers in domestic currency.
People trying to protect their earnings against depreciation were given two weeks from June 16 to convert the dollars or deposit them in a dollar account.
“At the end of the said amnesty period, the Central Bank of Sri Lanka has the right to initiate actions against persons who hold foreign currency in possession by violating the Order, in terms of the provisions of the Foreign Exchange Act,” the agency warned the people hit by depreciation and high inflation.
Since the Central bank was set up in 1950, Sri Lanka’s legislators has given the agency increasingly draconian powers to restrict the economic freedoms of citizens without enacting a strict laws to limits its independence to mis-target interest rates and trigger currency crises.
“The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges,” explained classical economist Friederich Hayek.
“Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.
“Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.
“It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape‐not merely for the rich but for everybody.”
The rupee has fallen from 4.70 to 360 to the US dollar since the agency was set up abolishing a currency board that had taken the country through a Great Depression and two World Wars.
The full statement is reproduced below:
Department of Foreign Exchange
AMENDING LIMITS AND TERMS AND CONDITIONS ON POSSESSION OF FOREIGN CURRENCY
With the intention of attracting foreign currency in the hands of the public into the formal banking system, the Minister of Finance has issued an Order under Section 8 of the Foreign Exchange Act No. 12 of 2017 as follows:
(1) Reducing the amount of foreign currency retained in possession by a person in, or resident in, Sri Lanka from USD 15,000 to USD 10,000 or its equivalent in other foreign currencies.
(2) Granting an amnesty period of 14 working days effective from the date of the Order (16 June 2022) for persons in, or resident in, Sri Lanka who hold foreign currency notes in possession for the following:
i. To deposit into a Personal Foreign Currency Account or into a Business Foreign Currency Account as specified in the Order, or
ii. To sell to an Authorized Dealer (A Licensed Commercial Bank or National Savings Bank) a. Contact any Licensed Commercial Bank or National Savings Bank.
b. Refer the Order under Section 8 of the Foreign Exchange Act published in the Gazette (Extraordinary) Notification No. 2284/34 dated 16 June 2022 via the official website of the Department of Foreign Exchange, www.dfe.lk.
c. Contact the Department of Foreign Exchange through 011-2477255, 011-2398511 and [email protected].
At the end of the said amnesty period, the Central Bank of Sri Lanka has the right to initiate actions against persons who hold foreign currency in possession by violating the Order, in terms of the provisions of the Foreign Exchange Act.