Central bank of srilanka

The Central Bank of SriLanka (CBSL)  is the monetary authority of Sri Lanka, and the apex institution in the country's financial sector. Established in 1950 under the Monetary Law Act No.58 of 1949, two years after independence. The founder governor of the Central Bank of Sri Lanka was John Exter, while the minister of finance at the time was J. R. Jayewardene. Under the former name of Central Bank of Ceylon, it replaced the Currency Board that until then had been responsible for issuing the country's money. It is a member of the Asian Clearing Union.

          The bank is responsible for the conduct of monetary policy in Sri Lanka and also has wide supervisory powers over the financial system.View to encouraging and promoting the development of the productive resources of Sri Lanka, the CBSL is responsible for securing its core objectives of economic and price stability and financial system stability. The CBSL is also responsible for currency issue and management. In addition, the CBSL is the advisor on economic affairs as well as the banker to the Government of Sri Lanka (GOSL). On behalf of GOSL, the CBSL, as its agent, is responsible for four agency functions of: management of the Employees Provident Fund; management of the public debt of Sri Lanka; administration of the provisions of the Exchange Control Act; and administration of foreign and government funded credit schemes for regional development.

vision

“A credible and dynamic central bank contributing to the prosperity of Sri Lanka.”

Vision central bank of Sri lanka, clearly indicates that bank is deeply committed to contributing to the prosperity of Sri lanka. The term prosperity has a wide connotation, enhancement of the equity of life of people through sustainable wealth creation and inclusion of all segments of the society in enjoying the benefits of development. The central bank would facilitate this process by ensuring economics and price stability and financial system while providing prudential and pro-active policy recommendation as the advisor to the government on economics affairs.

Mission

"Maintaining economic and price stability and financial system stability to support sustainable growth through policy stimulus, advice, commitment and excellence.”

The mission emphasizes the need for the Bank to continuously fulfill its core objectives: economic and price stability and financial system stability. The accomplishment of this mission would enable the Bank to create a conducive environment for economic agents to take a long-term view of the economy and make major decisions relating to resource allocation, production, labor supply, investments, consumption and savings, accordingly. Such a long-term focus is essential for sustainable growth and the alleviation of poverty.

Organizational structure

The Governor of the CBSL functions as its chief executive officer. The governor, two deputy governors and several assistant governors, along with the heads of departments, form the senior management of the CBSL. Functionally, the CBSL presently consists of 27 departments, each headed by a director (or equivalent), reporting to the governor or the deputy governor through an assistant governor, with the exception of the Management Audit Department, which reports directly to the governor.

Objective of central bank of Sri lanka

The CBSL's focus and functions have evolved since its formation, in response to the changing economic environment. In keeping with trends in central banking, the objectives of the CBSL were streamlined by amending the Monetary Law Act (MLA) in 2002, to enable it to pursue its two core objectives and to free it of the multiple objectives that were originally assigned to it.

            

                     The Central Bank has two core objectives:                                                                       

0                             01.   Maintaining economic and price stability

0                             02.   Maintaining financial system stability

                                                         with a view to encouraging and promoting the development of productive resources of Sri Lanka. Prior to the amendment of the MLA in 2002, the CBSL had multiple objectives such as stabilization of domestic monetary values, preservation of the stability of the exchange rate, promotion of a high level of production, employment and real income and encouragement and promotion of the full development of the productive resources. At times, these multiple objectives were in conflict or inconsistent with each other. Meanwhile, a consensus had developed internationally that a central bank’s primary goal should be the maintenance of price stability. As price stability is crucially dependent on stable macroeconomic conditions, one of the core objectives of the CBSL was specified as “economic and price stability”.

0   

           01.Maintaining economics and price stability

Price stability safeguards the value of the currency in terms of what it will purchase at home and in terms of other currencies. Price stability or stable prices means low inflation. Experience has shown that the economy performs well when inflation is low and is expected to be low. Interest rates are also low in these conditions. Such an environment allows an economy to achieve its growth potential and fosters high employment. Free from the disruptive effects of high and variable inflation, both consumers and producers make economic decisions with confidence. Low inflation or price stability fosters sustainable long-term economic growth and employment. The Central Bank uses monetary policy measures to control inflation.  

    02.Maintaining financial system stability

A stable financial system creates a favorable environment for depositors and investors, encourages efficient financial intermediation and the effective functioning of markets, and hence, promotes investment and economic growth. Financial system stability means the effective functioning of the financial system (financial institutions and markets) and the absence of banking, currency and balance of payments crisis. Financial instability is caused by bank failures, excessive asset price volatility, and collapse of market liquidity or a disruption to the payments system. Financial system stability requires a stable macro-economic environment, effective regulatory framework, well organized financial markets, sound financial institutions and safe and robust payments infrastructure. The maintenance of financial stability entails the prevention, detection and reduction of threats to the financial system as a whole, through the surveillance of markets and financial institutions, oversight of the payments system and crisis resolution.

Functions of Central banks of Sri lanka

Core function

The core functions of the CBSL are:

(a) Conduct of monetary policy.

(b) Conduct of exchange rate policy.

(c) Management of the official international reserves.

(d) Oversight of the financial system.

(e) Licensing, regulation and supervision of banks and selecting non – bank financial institutions.

(f) Provision of settlement facilities and the regulation of the payment system.

(g) Issue and distribution of the national currency.

(h) Compilation and dissemination of economic data and statistics.

(i) Acting as the banker and financial adviser to the Government.

Agency function

In addition, the CBSL also performs the following agency functions on behalf of the Government of SriLanka:

(a) Management of the public debt.

(b) Foreign exchange management.

(c) Fund management and acting as the custodian of the Employees’ Provident Fund.

(d) Facilitating financial inclusion.

(e) Financial intelligence services to detect and prevent money laundering and terrorist financing.