SL secures Chinese swap to tackle dollar dependency
View(s):China has stepped up the process of its currency renminbi (yuan) internationalisation expanding the role of the currency in Sri Lanka while increasing its weight in current account and capital account transactions and foreign reserve holdings.
The Central Bank (CB) and the People’s Bank of China (PBC) entered into a bilateral currency swap agreement with the aim of promoting bilateral trade and direct investment for economic development of the two countries, and to be used for other purposes agreed upon by both parties.
China remains Sri Lanka’s largest source of imports in 2020, amounted to US$ 3.6 billion 22.3 percent of country’s imports.
This swap agreement has been approved by the Cabinet of Ministers with the recommendation of the Monetary Board of the CB.
Governors of the two Central Banks, Professor W D Lakshman of and Dr. Yi Gang were the signatories to the agreement.
Under this agreement, CB is entitled for a swap facility amounting torenminbi (CNY) 10 billion which is equivalent to around Rs. 225 billion.
The agreement is valid for a period of three years. Economic experts say if implemented completely, the agreement could keep in check rupee’s volatility against the US $.
According to one expert there were no foreign buyers’ for Chinese currency in the international market.
He added that it can only be used for the importation of Chinese goods such as pharmaceuticals, refined petroleum, other appliances and also vehicles which is restricted at present.
Other experts noted that once the currency swap agreement between China and Sri Lanka comes into full force, it will significantly lift pressure off the foreign exchange reserves and the dependency on the dollar will decrease.
They added that according to the pact, the limit for exchange of local currencies of the two cannot be used for the repayment of debt or import of goods from other countries.
This means at the end of the three years of the agreement, if PBC has accumulated Rs. 225 billion the PBC can ask 10 billion renminbi (yuan ) in exchange of Rs 225 billion in dollars. (BS)