Central Bank wants exporters to convert dollars immediately

• Part of the recent measures announced to strengthen rupee 
• CB in Dec. said it would aggressively contain volatility in domestic foreign exchange market

In a string of measures aimed at strengthening the rupee against the US dollar, the Central Bank last week issued fresh instructions to exporters to receive total export proceeds within 180 days from the date of shipment and convert 25 percent of such dollars immediately. 

The Department of Foreign Exchange of Central Bank asked every exporter of goods to, “immediately upon the receipt of such export proceeds into Sri Lanka as required under this rule, convert 25 percent from and out of the total of the said exports proceeds received in Sri Lanka into Sri Lanka Rupees, through a licensed bank”. The quantum of the percentage will remain unchanged until the Monetary Board decided otherwise, the Central Bank said. 

“This rule shall apply in respect of all goods exported and where the hundred and eightieth (180th) date from the date of the shipment and exports proceeds received to Sri Lanka on any date after 18 February 2021,” it added.
The Sri Lankan rupee came under pressure since the second week of January 2021, mainly due to speculation that the currency would depreciate further.

In a bid to limit the space for speculation, the Central Bank suspended licensed commercial banks from buying and selling of forward currency for three months— what is known as forward currency agreements—effective from
January 25. 

Two days later the Central Bank also asked licensed banks to sell 10 percent of worker remittance income that they collect back to the Central Bank on a daily basis when such remittance income reaches the US$ 10 million threshold. 

In December the Central Bank said it would take appropriate action aggressively to contain volatility in the domestic foreign exchange market.

The government maintains that the current macro-economic fundamentals should value the rupee no weaker than Rs.185 to the US dollar and anything above is caused by speculation by unscrupulous parties to make
undue gains. 

Due to this speculation, exporters delayed converting their dollar proceeds into rupees. If all stakeholders expect the currency to depreciate, the currency will depreciate and if all expect the currency to appreciate, the currency appreciates, as the natural principle goes. 

On Friday, the Sri Lankan rupee closed stronger at 195.00/195.97 in the one-week’s forward market, from 196.50/197.00 a day earlier.  

In order for rigorous monitoring of the rule, the Central Bank also asked exporters to, “submit all related documentary evidence on each and every receipt of export proceeds in respect of every export of goods made, to the respective licensed commercial bank or the licensed specialised bank”. 

The licensed banks are also directed to submit reports to the Director of the Foreign Exchange Department as may be required from time-to-time and provide access to Central Bank officers to inspect or examine the records maintained under the rule, and to examine and review all actions taken by such licensed banks in securing full and strict compliance with these rules.