COLOMBO – Sri Lanka’s central bank said there will be no forcible conversion of worker remittances for a planned securitization of remittance surrenders by banks.
The central bank on Friday (12) requested proposals from investment bank to securitize remittances currently sold to the central bank by banks.
The central bank said the speculation that the “Securitized Financing Arrangement (SFA) is aimed at converting all worker remittances into Sri Lankan rupees upon receipt by licensed banks,” is not true.
“The Central Bank of Sri Lanka (CBSL) categorically states that there is no truth whatsoever in this allegation,” the monetary authority said.
“While a RFP has now been launched to explore the possibility of securitizing this already existing flow to the Central Bank, the SFA will have no impact on any worker remittance, which can continue to be freely retained in foreign currency accounts in Sri Lanka or converted into Sri Lankan rupees as
done in the past.”
The central bank however has placed mandatory conversion rules on exporters of goods and services.
The surrendered remittances are represented by a rupee liquidity injection which initially forms part of the monetary base and is a liability of the central bank.
The injected rupees are owned by the recipients of the original foreign exchange inflow. It is a liability of the central bank, and is liable to be redeemed at the 203 to the US dollar peg, unless the rupees are sterilized.
Already remittances are being diverted to unofficial channels to a credibility loss of the peg.