brand logo

Forex earnings: No forcible conversion, says CBSL

12 Dec 2021

By Maneesha Dullewe The Central Bank of Sri Lanka (CBSL) last week denied allegations that a gazette published recently by them had led to forcible conversions of foreign currency earnings, pointing out that the instructions pertained to export earnings and were in line with the law. The CBSL gazette notification, published in late October on the rules regarding the repatriation of export proceeds into the country, applies to all exporters of goods and services including professional/vocational, occupational, and business services provided to persons resident outside Sri Lanka by persons resident in Sri Lanka. However, there have been claims of mandatory conversion of earnings into rupees by resident Sri Lankans who earn foreign currency salaries that they deposit into foreign currency accounts. Speaking to The Sunday Morning, CBSL Deputy Governor T.M.J.Y.P. Fernando asserted otherwise, saying: “If there are Sri Lankan citizens providing a service to an overseas customer or non-resident and receiving some income in foreign currency, that is an export of a service, and in that case, the rule that the CBSL recently issued on export proceeds – the requirement to convert (earnings) after setting off certain expenses – is applicable for such a person,” she justified. The notification further stipulates banks are required to convert the entire residual balance of the export proceeds received in a particular calendar month into Sri Lankan rupees after the account holder is allowed to meet the authorised payments, by the seventh day of the month as stipulated in the gazette. “When it comes to their business foreign currency accounts, the rule is that you can use it for the repayment of any foreign currency loan relating to that service. So after reducing that, the remaining amount needs to be converted to Sri Lankan rupees within the given time period,” the Deputy Governor confirmed. Asked again about claims that resident Sri Lankans who earn foreign currency salaries were allegedly forced to convert their foreign earnings into Sri Lankan rupees, the Deputy Governor stated: “There is no forcible conversion, because it’s a law of the country.  “In 2016, in relation to (the export of merchandise goods), we required a person to bring the earnings to Sri Lanka within 180 days, a time period which was later extended. That rule has been there for a long time. Then, earlier this year, we wanted a 25% conversion for export proceeds of merchandise goods. Then, very recently, after the six-month roadmap was announced, the rule was changed further, taking note of the presentations made by exporters of goods, who wanted some foreign currency to fulfil certain expenses. Thus, the rule was changed to allow them to use those funds,” Fernando stated. She then noted that the rule also stipulated that the entirety of the balance of foreign currency, i.e after paying for those expenses, should be converted to Sri Lankan rupees within a given period. “Simultaneously, we have announced that service exporters also need to follow a similar conversion. Therefore, it is not something that’s done forcibly, since we have issued instructions to the banks and the banks have to follow through. We have issued a public notice as well,” Fernando said. Commenting on the matter, People’s Bank General Manager Ranjith Kodithuwakku also maintained that there was no forcible conversion of foreign exchange proceeds, noting that for monies sent to Sri Lanka through official channels like banks, there will be an additional Rs. 10 paid by the bank. “We are trying to induce customers to send money through formal channels. There’s no compulsory conversion as such for foreign currency accounts. There were previously some regulations where the exporters had to do some conversions subject to certain conditions, but other than that, there were no such restrictions for private remittances. Whoever has foreign currency accounts are not affected at all,” he said. The move by the CBSL to convert export services earnings followed by a crackdown on informal channels of moving remittance was announced last week, as Sri Lanka struggles to mitigate the impact of a US dollar shortage. The CBSL claimed that such a mechanism may be linked to money laundering and narcotics trafficking. Following a CBSL decision to peg the US dollar rate to Rs. 200-203, many expatriates have sought better prospects by sending their remittances via methods such as “hawala” money transfer services. According to the CBSL, remittance received through banks dropped an estimated $ 300 million last month and many migrated to using unofficial channels, who offer better conversion rates than the CBSL.


More News..