18 March 2022 09:28 am Views - 529
A sudden spike in remittances has been observed since the rupee was floated last Monday as the State-owned People’s Bank, which is among the two leading collectors of remittances, said it is witnessing an influx in such inflows.
The Central Bank last week floated the rupee after holding on to for more than 6 months allowing the currency to find its own value based on demand and supply forces.
The fixed exchange rate at Rs.199/203 to a dollar became a breeding ground for informal moneychangers who offered significantly higher conversion rates for dollars and other currencies outside the formal banking system.
This caused the Sri Lankan migrants to repatriate their hard-earned moneys via informal channels such as Hawala and Undiyal. As a result, the money sent via the formal banking system fell 40 percent in January 2022 from a year ago.
The remittance income plunged 61.6 percent to US$ 259.2 million in January 2022 over the same month in 2021.
Although various mechanisms such as incentive schemes, mobile applications and cracking down on informal money changers were deployed by the authorities, nothing worked in their favour as migrant workers continued to choose the informal channels for a substantially better deal.
Now that the rupee was floated a week ago, it has found its own value based on the market forces, effectively closing any advantage enjoyed at the
informal channels.
The telegraphic transfer rates quoted by commercial banks after the currency float had risen to Rs.260-270 levels.
This has encouraged migrants to use the formal banking channel more widely than before, according to Rajith Kodituwakku, the Chief Executive Officer of
People’s Bank.
“PB Sri Lanka has seen a significant increase in worker remittance inflows since the currency was allowed to free-float. Customers appear to be preferring official banking channels over informal means to send their money back,” he said in a twitter message this week.
Sri Lanka lost about Rs.1.5 billion or 23 percent in remittance income in 2021 compared to a year ago as the country collected only US$ 5.5 billion as migrant workers were drawn to informal channels due to the artificial exchange rate maintained by the Central Bank for months.