Sri Lanka should set up currency board to stop rupiah depreciation: US economist

ECONOMYNEXT – Sri Lanka should set up a currency board to halt further currency slides, US economist Steve Hanke has said as the island’s currency plummeted from 203 to 290 to the US dollar in an attempt to float the currency which has yet to succeed.

“Since January 1, 2022, the Sri Lankan rupee has depreciated by around 26% against the US dollar. #SriLanka’s severe balance of payments crisis and recent fuel price hikes are sinking LKA” , Hanke said in a post on

“To alleviate the crisis, LKA must install a currency board, like the one it had from 1884 to 1950.”

Sri Lanka – then Ceylon – set up the currency board after the Ceylon rupee issued by the Oriental Bank Corporation stopped exchanging money for rupee notes, the so-called technically a suspension of convertibility.

A modern central bank also attempts a float in the same way, although the bank is not closed.

A currency board is easy to set up and will end balance of payments problems forever, isolating the public and also politicians from Keynesian economists who print money to manipulate interest rates.

Hanke prepared a manual on how to set up a currency, including measures for war-torn countries where the monetary authority could be incorporated overseas to prevent any warlord from getting their hands on reservations.

Find out how to set up a currency board here. Currency_Boards_for_Developing_Countries-1

Currency boards have very low interest rates about 50 basis points above the anchor currency which can be the US dollar, Euro or Singapore dollar.

When the Oriental Bank Corporation closed, the Mercantile Bank, which also issued notes, provided convertibility at par.

Oriental Bank Corporation ran out of cash reserves due to bad debts. A modern central bank is short of dollar reserves due to direct government financing of deficits, refinancing of credit programs, and sterilized interventions or provision of reserves for imports.

The central bank of Sri Lanka now holds more than two trillion Treasury bills, some of which have been taken back from the banks as part of private sector financing to maintain a key rate or control the prices of bond auctions.

Sri Lanka’s currency board, which had provided security for the island through two world wars and a Great Depression, was replaced by a Latin American-style central bank under technical advice from the United States in 1950.


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Almost all of these central banks by Fed pundits led to social unrest and some central banks collapsed and led to spontaneous dollarization.

Analysts have warned this could also happen in Sri Lanka if the float is not established.

Knowledge of currency boards has been lost to most post-World War II “economists” who relentlessly favor depreciation of monetary central banks, whereby they attempt to stimulate growth with “stimuli” creating balance of payments problems, starving the poor, creating social unrest, people and overthrowing governments.

Rising global food and commodity prices hurting the world’s poor while strengthening the hands of authoritarian leaders in resource-rich countries after the US and the ECB printed huge sums of money. silver is the latest example according to analysts.

Steve Hanke was one of the few economists in the world who correctly warned that the Fed’s Jerome Powell would trigger an inflationary spiral.

Hanke helped set up several currency boards, especially in Eastern Europe.

Currency boards have a neutral policy and are still used in East Asia. However, most East Asian pegs, including Vietnam, are tighter than currency boards and collect foreign exchange reserves in excess of base money. (Colombo/March 25, 2022)

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