Products of Bank of Cylon

Central Bank of Sri Lanka

Vision

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

Mission 

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

History of the Central bank,

The post-independence Government of  Sri Lanka established the Central Bank of Ceylon to maintain an active monetary policy regime and a dynamic financial sector to support and promote economic growth. 

Technical expertise to establish a central bank was sought from the United States of America (USA) in July 1948, with Mr John Exter, an American economist from the Federal Reserve of the USA being appointed to carry out this task. 

The central bank of Ceylon was established by the monetary law Act No.58 of 1949. But the operations were commenced on August 28, 1950. After several years, the bank's name was changed as Central Bank of Sri Lanka (CBSL). 

The Central bank was given huge authorities to administer and regulate the entire money, banking and credit system of Sri Lanka. The Central Bank was also given the right to issue currency and it also became the custodian of the international reserves of the country.

In 1949, there were four main objectives of the Central Bank. They are,

1. The stabilisation of domestic monetary values(Inflation)
2. The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee 
3. The promotion and maintenance of a high level of production(facilitate to increase the GDP) , employment and real income in Sri Lanka.
4. The encouragement and promotion of the full development of the productive resources of Sri Lanka

Current situation of Central Bank

But now, because of the keeping with the worldwide trends in central banking and the rapid changes in international financial markets, consequent to the economic liberalisation and the significant advancement in information technology, the Central Bank was bringing down their objectives into two.

They are,

1. The maintaining of economic and price stability
2. The maintaining of financial system stability

The maintain of economic and price stability

This includes both the internal (Inflation) and external (exchange rate) price stability in the country.

In an economy, there are many variables such as inflation, interest rate, GDP, unemployment, income distribution, etc. All these variables should stable for a longer period. That stability is the economic stability of a country. 

The maintain of financial system stability

A financial system is a system that covers financial transactions and the exchange of money between investors, lender and borrowers. The main role of the financial system is financial intermediation, so the financial intermediation should be stable.
Simply the financial system stability means,  A stable financial system is capable of mobilising savings and allocating them to productive investments, managing risks and settling payments, without materially affecting economic growth and welfare of the people even during economic shocks and stressful circumstances. This helps to create a favourable environment for efficient financial intermediation to promote investment and economic growth.
A stable financial system make sure that banks operate properly, the supervision is done properly, and then depositors and investors are also confident to do their transaction

Other transactions that the central bank does to stable the financial system

Central bank mainly influences its financial markets. Financial markets are the Money market and the Capital market. When there is a situation, that the liquidity is low in the financial markets, the central bank will buy the treasury bills that people owned in the economy. Because of that the money goes to the market and grow up the liquidity and vice versa. 

To achieve these objectives, the Central Bank needs to do certain functions. The functions of Central Bank can be divided into two parts

Core functions

• Conduct monetary policy
• Conduct of exchange rate policy
• Management of the official international reserves
• Oversight of the financial system
• Licensing, Regulating, and Supervising of banks and selected non-bank financial institutions
• Provision of settlement facilities and the regulation of the payment system
• Issue and distribution of the national currency
• Compilation, Dissemination and Analysis of economic data and statistics
• banker to the government and its agencies, and provision of current account facilities to LCBs and non-commercial bank primary dealers for government securities

Agency Functions

• Management of the public debt
• Foreign exchange management
• Fund management and custodian of the employees' provident fund
• Facilitating financial inclusion
• Financial intelligence services to prevent, detect, investigate and prosecute money laundering and terrorist financing