- Move aimed at re-channeling remittance flows via formal banking channels
The Central Bank will soon start cracking down on informal money exchangers such as ‘Hawala’ as the country continues to lose a significant amount of foreign exchange received via migrant worker remittance which started slowing down from around June this year as the people chose the unofficial channels which changes foreign currency at a much higher rate than the formal banks.
Ajith Nivard Cabraal
Further, some of the clearing houses are also found to have been engaging in this kind of activity and the Central Bank is looking at the laws that are at their disposal and other avenues to stop such from recurring.
The country’s foreign exchange shortages exacerbated from around June this year after the inflows slowed due to fresh restrictions from the virus resurgence, and the country repaid a billion dollar bond from its already thin foreign currency reserves, prompting the authorities to tighten controls on outflows due to the shortage created in the domestic foreign exchange market.
While the Central Bank fixed the exchange rate at Rs.198/202 levels, the conditions created parallel exchange rates which are far higher than the official rate quoted by the banks which prompted migrant workers to repatriate their earnings through informal channels at substantially higher rates, giving them a better deal.
“We have seen that many are used to send back money through systems such ‘Hawala’ in the recent past due to the gap created by the black market,” said Central Bank Governor Ajith Nivard Cabraal.
“We have looked into this and we have been given information about these channels by various sections. Using such information we are working towards slowing them down and dissuading such avenues”, he stressed. While there have been certain assurances given by the informal money changers in the recent past to adhere to certain parameters when engaging in their business, such assurances have not been followed, prompting the Central Bank to continuously monitor them and take action.
“Yes, we are monitoring them. We have had several instances where it has not been entirely in accordance with their assurances. We have seen certain instances where there have been lapses. We will deal with those”, Cabraal stressed.
It has also been found that the some parties have used the banking system also to bypass the formal channels when changing foreign currency.
“We are also dealing with some of the schemes that have been implemented during the last few months perhaps which have also called for some disruption. Particularly some people use the banking sector as well. We have got information of some of those instances and we are dealing with that,” Cabraal said.
“There are some clearing houses as it were, which are indulging in this kind of clearing of foreign exchange receipts which occur in one part of the world and there is a mirror image transaction taking place here as well,” he added.
“So, these need to be addressed. We are using the laws as well as the persuasive powers the Central Bank has with the banks to deal with that. We have already started action on that and we will very soon see some results which will bring down the effect of that kind of transactions,” he further said.
Sri Lanka currently offers Rs.2.0 extra for a dollar for worker remittances to woo remittances via formal banking channels and will soon introduce other benefits such as pension and insurance schemes as additional incentives for the migrants to use formal banking channels to send back their earnings.
Besides, Sri Lanka is also taking steps to fast track the departure process of a large number who could not migrate for foreign employment during the last two years due to the pandemic.
According to Central Bank data, an average 230,000 Sri Lankans seek foreign employment annually but this segment was stuck for nearly two years, weighing on the remittances income.
During the nine months to September, Sri Lanka received US$ 4,577.5 million from remittances, down 10 percent from the same period last year as the months long deceleration in the key inflow came to a head in September with its receipts nearly halving to US$ 353.2 million from the same month in 2020.