No imminent need for Sri Lanka to unlock usability of Yuan denominated swap

• US$ 1.4bn equivalent swap line sitting at gross reserves since March 2021

Central Bank said they hadn’t even begun talking about unlocking the roughly US$ 1.4 billion equivalent Yuan denominated currency swap line with China as they do not see the need for doing so and they also have a target to build its foreign currency reserves under the International Monetary Fund (IMF) programme currently in place.
The Central Bank was highly credited for rebuilding its foreign currency reserves by about US$ 2.5 billion in 2023 within about an year to US$ 4.4 billion which many thought was a long shot given the predicament which Sri Lanka fell into in 2022, running out nearly all its usable reserves.
This was possible largely from the debt standstill, significantly reduced imports, multilateral support including from the IMF and the record level of net purchases of foreign currency made possible from the recovery in the inflows from tourism and remittances.
The roughly US$ 1.4 billion equivalent Yuan denominated currency swap line from the People’s Bank of China has been sitting in at the Central Bank from March 2021 outside its reserves until it was taken as part of the gross official reserves from December in the same year by the then officials just to make the reserves figure look bigger as the country was heading towards defaulting on its foreign currency debt after burning through the usable reserves to repay debt and to pay for imports.

No imminent...
However, it could not be used by Sri Lanka as there were conditionalities which prevented its usability since it was first received.
“We haven’t actually begun even talking about its usability yet. We can talk about it if we want when the reserve level goes further up. Since we have built some buffer, we do not think we need to use it,” said Central Bank Governor, Dr. Nandalal Weerasinghe.
According to him, the facility provides the country the ability to trade with China in Yuan, and if China feels they want to further encourage trading, they can come to some understanding about its usability.
“While there is no requirement at the moment, at some point we can consider it”, he further said.