ECONOMYNEXT – Sri Lanka’s Colombo Port City, which will soon be renamed as the International Financial and Technological City, is awaiting Central Bank clearance for its banking regulations, Saliya Wickramasuriya, a member of its regulatory commission said.
The Colombo Port City is a multi-currency special economic zone (dollarized) that will be free of exchange controls. Some of the laws in the country, like the Urban Development Authority Law, the Municipal Ordinance do not apply to the zone.
In several other listed laws, including the foreign exchange act, and tax laws, the economic commission can recommend exemptions which have to be approved.
The Port City Commission has to work with the relevant agency in charge of the law, like the Central bank in relation to banking, the Department of Immigration for visas or Customs in preparing special regulations to apply within its jurisdiction.
Banks operating within the special economic zone will be licensed by either the central bank or the country it is incorporated in.
“There was a meeting yesterday between some of our members and the Central Bank,” Wickramasuriya told a public forum at the central bank.
“I understand that those regulations have now been discussed and pretty much finalised.”
Authorised Persons – or businesses approved to operate in the area – have to bring capital from abroad.
Foreign exchange controls will not apply to the area. But no rupees are supposed to be used there, except in some retail shops.
“There were some concerns that the central bank had around preventing a leakage of money that is, here,” he explained.
Initially a separate financial regulatory authority was proposed which would come under the central bank’s monetary board, operating under a different set of regulations.
“Why? The objective of one is, simply put, to attract money that is not here into Sri Lanka for the purpose of development and investment,” he said
“One of the objectives of the Central Bank, apart from its other policy responsibilities, is to prevent leakage of money that is here, outside.”
“It’s highly possible, in my humble opinion, that these two cannot be done by the same regulation.
“Because one is designed to prevent and the other one is designed to attract. And right now, we are still, I believe, in the process of unravelling this, this confusion about what is more important.
“Is it more important to prevent money from here, going somewhere else? Or is it more important to bring money that is not here, from somewhere else, here?”
Sri Lanka’s monetary instability started with the setting up of the central bank in 1950 and worsened from 1978 after International Monetary Funds’s Second Amendment left it without a credible anchor, analysts have pointed out.
Foreign exchange controls exist in the rest of the country since the central bank prints money to narrowly target a policy rate through inflationary open market operations and easy standing facilities while operating a de facto pegged exchange rate (trying to collect foreign reserves).
There have been calls to bring legal restraints against the central bank’s ability to mis-target rates (independent monetary policy), trigger forex shortages, currency depreciation, capital flight, high inflation, social unrest and impoverishment through debasement. (Colombo/Mar14/2024 – Corrected legal exemptions)
