Sri Lanka central bank says issues guidelines to bank forex dealers

Sept 20, 2012 (LBO) - Sri Lanka's Central Bank said it had issued a direction under the country's banking law improve "the standard of business conduct and good market practices" on foreign exchange trading activities of licensed commercial banks. However some of the more extreme controls have been relaxed over the past three decades. "The Direction broadly covers the market practices, internal policies and procedures, ethics and standards to be practiced in conducting foreign exchange trading activities," the Central Bank said in a statement.

"This Direction will be of significant importance and value since the smooth and efficient functioning of a foreign exchange market depends on the orderly conduct of foreign exchange trading activities with high professional standards.

"Further, as the market grows in size, diversity and complexity, the demand for uniform practices increases correspondingly."

The regulator said the views of those affected by the regulation have been sought before issuing the direction.

The rules come as the country is emerging from its latest balance of payments crisis triggered by the Central Bank.

Since a so-called soft-pegged Central Bank was created in Sri Lanka in 1951, to take the country into the failed Bretton Woods system, the country has been pushed into a series of balance of payments crisis by excessive money printed by the monetary authority.
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Before 1951 Sri Lanka had a currency board, where money printing to finance budget deficits or sterilize foreign exchange sales were legally not permitted, keeping the exchange rate fixed since the previous century.

Sri Lanka's ran into balance of payments trouble within two years of creating the Central Bank triggering increasingly draconian foreign exchange controls.