Sri Lanka losses on Greece bonds offset by other gains: Central Bank

July 07, 2012 (LBO) - Sri Lanka has lost money by buying Greece government bonds for its foreign reserve portfolio but returns on other assets have offset the losses, the Central Bank said.

Sri Lanka has a de facto peg with the US dollar and aggressive investment strategies involving diversifying out of dollar assets can result in large mark-to-market losses on cross currency movements.

Steep cross currency movements involving strengthening of the US dollar were seen in 2008 when Sri Lanka lost about 200 million US dollars and also in the past quarter.

Gold prices have also fallen this year.

But the US itself has been downgraded out of its triple 'A' rating by Standard and Poor's and several central banks have bought into gold. Sri Lanka's central bank has also been actively trading in gold.

The current economic crisis, triggered by loose US policy from around 2001, has also re-ignited a long simmering debate on whether excessively inflation and bubble-prone pure paper fiat money should be ended in favor of a more stable gold linked money standard.

"The investments in Greece Bonds were a small fraction of the Central Bank total Europe portfolio and the loss of the Greek bonds w