CB asks banks not to facilitate forex deals outside official banking channels

• Requests banks to assist maintaining USD/LKR rate at Rs.200-Rs.203

In a letter addressed to commercial bank chiefs, the Central Bank last week requested banks to refrain from facilitating foreign exchange requirements of importers outside the official banking channels to maintain the US dollar/rupee exchange rate between Rs.200-Rs.203.

“…at a recent meeting with senior officers of licensed banks, it has been brought to our attention that a separate market exists among exporters and importers outside the formal banking system to arrange their foreign exchange requirements, leading to an unhealthy development undermining the stability of the exchange rate and the smooth functioning of the domestic foreign exchange market,” the letter co-signed by the Director of Bank Supervision and International Operations read.

On September 9, 2021 former Governor Prof. W.D. Lakshman, in a controversial move, requested bank CEOs via email to execute dollar/rupee transactions at the range between Rs.200-Rs.203. This came at a time when banks were quoting the US dollar around Rs.220. 

Although the banks complied with the request, its outcome was the creation of a separate market among exporters and importers outside the formal banking system for their foreign exchange requirements, which were unofficially facilitated by banks. 

“Accordingly, we request you to take necessary measures to prevent such arrangements and transactions taking place outside the banking system and to promote export proceeds received through the banking channels be utilised for import payments via the banking system, enabling to improve transparency of foreign exchange transactions in the market, while facilitating the Central Bank to maintain the USD/LKR exchange rate at the stipulated range and ensuring the smooth functioning of the domestic foreign exchange market activities,” the letter further requested.