Ex-CBSL Chief Advocates Gradual Relaxation of Exchange Controls

COLOMBO (News 1st); Dr. Indrajith Coomaraswamy, former Governor of the Central Bank of Sri Lanka, has emphasized the need for a cautious approach to relaxing exchange control regulations, particularly in the context of Free Trade Agreements (FTAs).

Responding to a question about the necessity of relaxing exchange control regimes, Dr. Coomaraswamy acknowledged that the process of liberalization is ongoing. He noted that gradual relaxation is taking place, and further liberalization could be considered once the country's reserves reach a significant buffer level. However, he stressed the importance of proceeding cautiously to ensure the stability of the financial system.

Dr. Coomaraswamy highlighted the empirical evidence suggesting that greater openness to capital flows can attract more investment. Nonetheless, he underscored the need for a strong foundation to handle sudden shifts in capital flows. He shared his experience from his tenure at the Central Bank, where a significant outflow of portfolio investment in rupee securities posed challenges to managing the exchange rate and maintaining monetary policy stability.

He pointed out that the current exposure to portfolio investments in rupee securities has been minimized, which he views as a positive development. 

Dr. Coomaraswamy emphasized that while the ultimate goal should be to open up the economy as much as possible, it is crucial to ensure that the financial system is robust enough to manage potential volatility.