Central Bank in Sri Lanka

The Central Bank in Sri Lanka, established in 1950, is the apex financial institution of Sri Lanka. So, it is responsible for maintaining economic and price stability in the country. It is also the regulator and supervisor of the country’s financial sector, including commercial banks, non-banking financial institutions, and other financial intermediaries. This article provides an in-depth analysis of the role and functions of the Central Bank. The article includes the history, organizational structure, monetary policy, and impact on the economy of CBSL.

History of the Central Bank in Sri Lanka

The Central Bank in Sri Lanka was established in 1950 under the Monetary Law Act, No. 58 of 1949. Prior to that, the country’s monetary system was under the control of the Currency Board. However, the board only operated from 1885 to 1950. The Bank took over the functions of the Currency Board and became the country’s sole currency issuer. The primary objective of the Bank was to maintain price stability and promote economic growth.

Organizational Structure of the Central Bank in Sri Lanka

The Central Bank in Sri Lanka is headed by a Governor who is appointed by the President of Sri Lanka. The Governor is assisted by Deputy Governors and other senior officials.

Some of the departments of the Bank include the Economic Research Department, the Bank Supervision Department, the Payments and Settlements Department, and the Financial Markets Department. Such departments collaborate towards the attainment of the bank’s objectives.

Functions of the Central Bank in Sri Lanka

The Central Bank of Sri Lanka is entrusted with a myriad of functions. The major ones include planning and implementing monetary policy, regulating and supervising the banking system, managing the foreign reserves of the country, and issuing currency.

Issuing Currency

The Bank is the country’s sole currency issuer. It prints and issues notes and coins and also manages the country’s currency reserve.

Formulating Monetary Policy

The Central Bank in Sri Lanka formulates and implements monetary policy with the aim of maintaining price stability and promoting economic growth. It uses various tools, such as interest rates, reserve requirements, and open market operations, to control the money supply in the economy.

Regulating and Supervising Financial Institutions

The Central Bank is responsible for regulating and supervising financial institutions in the country, including banks, non-banking financial institutions, and other financial intermediaries. It sets rules and regulations for these institutions and monitors their compliance with these rules.

Foreign Reserves Management:

The Central Bank of Sri Lanka manages the country’s foreign reserves to ensure that the country has adequate foreign exchange reserves to meet its external payment obligations. The bank also plays a vital role in managing the exchange rate of the Sri Lankan rupee.

Conducting Economic Research

The Central Bank conducts economic research to support its policy decisions. It collects and analyzes data on the economy and publishes reports on various economic indicators, such as inflation, economic growth, and the balance of payments.

Monetary Policy in the Central Bank of Sri Lanka

The Central Bank adopts a flexible inflation-targeting framework as its monetary policy framework. Monetary policy decisions of the Bank are taken by the Monetary Board, a committee of the Bank. The Monetary Board targets inflation and adjusts policy interest rates accordingly to meet the inflation target.

Relation of the Central Bank of Sri Lanka with the Economy

The Bank has serious implications for the economy of Sri Lanka. Its monetary policies determine the price of credit operations such as borrowing and lending, which in turn influence economic activities. The monitoring and control of financial institutions by the Bank is to ensure the stability of the financial system and consumer protection.

Conclusion

The Central Bank of Sri Lanka plays a pivotal role in the economy of the country. They issue currency, formulate monetary policy, regulate and supervise financial institutions, and conduct economic research. Monetary policy and the regulation of financial institutions by the Bank directly affect the economy.