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Sri Lanka Foreign Exchange System
In 1948 Sri Lanka had an essentially open-door policy on
imports and an optimistic outlook for its foreign trade
relations, but deterioration in the value of the country's export
earnings led in 1953 to the Exchange Control Act, which placed
some restrictions on the movement of foreign currency. In 1961,
in response to balance of payments problems, a rigorous system of
exchange controls was introduced. Licenses that acted as exchange
permits were issued by the controller of imports and exports. All
imports and exports were subject to these regulations, and
foreign exchange entering the country, whether by way of exports,
invisibles, or the movements of capital, had to be surrendered to
the exchange control authorities. Only imports of goods
classified as essential were permitted. The list of such items
became smaller during the 1960s because of the increasing
scarcity of foreign exchange and the availability of new items
through local production. In the early 1970s, only imports of the
barest minimum of foodstuffs, drugs, textiles, raw materials, and
capital goods were allowed.
From 1970 to 1977, Sri Lanka had a dual exchange rate system
in addition to exchange and import controls. Under the system,
imports of indispensable items--such as food and drugs--were
allowed at the official rate, while all other imports were
subject to a higher rate. Foreign exchange earned from tea,
rubber, and coconut was converted into rupees at the official
exchange rate, while earnings from all other exports were given
the benefit of the higher rate.
In November 1977, the exchange rate system was liberalized as
part of the new government's economic reforms. The dual rate
system was abolished, and the rupee was set free to float in
response to international developments and the balance of
payments position. The immediate effect of this measure was a
devaluation of around 50 percent; after this time, the rupee
continued to fall gradually against the major international
currencies. In December 1987, US$1 equalled Rs32.32 compared with
Rs19.3 six years earlier.
Data as of October 1988
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