Sri Lankan currency faces heat following currency swap with China

A significant depreciation on the Sri Lankan rupee has been noticed after entering into a currency swap agreement with China as it cannot be used for the strengthening of the country’s foreign reserves, reported leading Lankan media outlet The Leader.

In the wake of depleting foreign exchange reserves, Sri Lanka rupee is putting pressure on the balance of payments, The Leader reported quoting an eminent economic expert.

The demand for dollars remains high in the open market and there is less demand for Yuan as no country is dealing with such currency, the expert said, adding that the $400 million currency swap with India has helped to maintain the rupee stable for even a small period.

The Lankan rupee has been maintained at Rs.187.86 per dollar on July 31 from Rs.188.02 on July 24, 2020, in six days since signing the currency swap with India, the country’s Central Bank data showed, according to The Leader.

“Since the swap is in Yuan, the government can only use that money to pay import bills. This is useful since China is one of the biggest import destinations with Sri Lanka regularly importing about USD 3.5-4 billion in goods,” another expert told The Lankan.

“But it will not top up reserves and that is what Sri Lanka really needs,” he added.

On March 10, Lankan State Minister of Finance Ajith Nivard Cabraal announced that the People’s Bank of China had approved a 10 billion Yuan currency swap with Sri Lanka.

The Lankan rupee has depreciated to Rs. 203.50 against the US dollar on April 8 from Rs. 198.66 on March 10 in ten days after entering into a Chinese currency swap agreement, Central Bank data showed.

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Lankan Opposition lawmaker Dr. Harsha de Silva has said that Sri Lanka’s external problem is linked to medium and long term solvency requiring debt restructuring and is not a short term liquidity problem that can be solved by swaps, according to The Leader.



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