Exchange control will become obsolete - Economist | Sunday Observer

Exchange control will become obsolete - Economist

3 December, 2017

Foreign exchange control will be completely meaningless in time to come as the world will be using digital or bitcoins where money will be carried in people’s minds and not in wallets said a senior economist.

He said the world is moving so fast that there is no point in wasting time to have exchange control. Many countries have moved away from exchange control to use digital currency where one would require to have a password to carry out transactions.

However, he said the new Foreign Exchange Act (FEA) has decriminalised the old law under which violation is a criminal offence. This move is proper and fitting as one should not be told how he or she should use his or her hard earned money.

Former Central Bank Deputy Governor W.A. Wijewardena said people earn and have the right to spend. If one earns Rs. 5,000 he has the right to spend it. If it is used for illegal purposes the law should deal with it.

He said there is no controlling aspect of foreign exchange under the new law which is implemented by the Central Bank as the agent of the Government subject to the direction of the Minister assigned for the subject coming within the purview of the FEA.

“The new law has decriminalised exchange control violations and citizens have been freed from its draconian provisions. The responsibility to implement the new management system has been vested on the authorised dealers who are subject to neither criminal nor civil proceedings under FEA. Instead, they are disciplined through an administrative process,” Wijewardena said.

He said holding of foreign exchange by citizens under the old exchange law has been laid out in a negative context. In terms of Section five, no person other than an authorised dealer should hold or deal in foreign exchange. This has been put in a positive context in the new Act under Section 8(1)(b) which states a person in or resident in, Sri Lanka shall “hold foreign exchange in his possession or in his bank account in Sri Lanka”. They could use it subject to the purposes, limits and terms and conditions prescribed by the Minister.

However, views have also been expressed that the FEA will pave the way for money laundering and other illegal activities in the country making the Anti Money Laundering Act ineffective .

The Central Bank in a media release last week stated “With a view to further liberalizing capital flows and simplifying the processes associated with current account transactions and various types of foreign currency/rupee accounts, the Government declared in its Budget Proposals for 2016, that a new foreign exchange law will be introduced. In keeping with this announcement, a new legislative and policy framework for foreign exchange operations has been implemented by the Foreign Exchange Act, No. 12 of 2017 with effect from November 20, 2017, repealing the Exchange Control Act, No. 24 of 1953. Provisions of the new Act are being implemented through the newly established Department of Foreign Exchange in the Central Bank of Sri Lanka. Relevant regulations and orders made under the new Act by the Minister of National Policies and Economic Affairs have been published in the Gazette Notification No. 2045/56 dated November 17, 2017, while directions have been issued to Authorized Dealers by the Director of Department of Foreign Exchange on November 20. Professor of Economics University of Colombo Sirimal Abeyratne said the Foreign Exchange Act is part of a long-awaited reform in the area of foreign exchange management.”I believe much of it would have come into effect at least with Sri Lanka’s liberalization policy reforms in 1977. Sri Lanka traditionally inherited and maintained foreign exchange ‘controls’ and, hence we have an Exchange Control Act and an authority at the Central Bank known as Exchange Controller. Although Sri Lanka fully liberalized foreign exchange transactions on current accounts in 1994, ‘making use’ of foreign exchange was restricted. The new Act is aimed at further liberalization and better management of foreign exchange. It would also leave the exchange rate movement to be more responsive to the foreign exchange market rather than to its controls. There is, however, a question too. How effective it would be at least in the short-run depends on how the public perceives the business environment and future direction of the economy. This means that business and consumer confidence is important in order to reap the benefits of the new reforms.”