CENTRAL BANK OF SRI LANKA

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 CENTRAL BANK OF SRI LANKA


 Introduction to CBSL


Established in 1950 under the Monetary Law Act No.58 of 1949 (MLA), the Central Bank of Sri Lanka (CBSL) is the apex institution in the financial sector in Sri Lanka
The Central Bank of Ceylon was set up by the post-independence Government in recognition of the importance of an active monetary policy regime and a dynamic financial sector to support and promote economic growth The Central Bank was given wide powers to administer and regulate the entire money, banking and credit system of the country. The Central Bank was also given the sole right and authority to issue currency and it became the custodian of the international reserves of the country. The objectives of the Central Bank

  •   The stabilization of domestic monetary values (maintenance of price stability).
  •  The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee
  • The promotion and maintenance of a high level of production, employment and real income in Sri Lanka.
  • The encouragement and promotion of the full development of the productive resources 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

 Objectives of CBSL


The present objectives of the Central Bank were established by amending the Monetary Law Act(MLA) in 2002. The Central Bank has two core objectives:

  •   Maintaining economic and price stability
  •   Maintaining financial system stability 

 

Maintaining economic 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. 

 

 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 bank of sri lanka


 Core functions 

  •          Conduct of monetary policy
  •      Conduct of exchange rate policy.                                                                                                                               
  •       Management of the official international reserves.
  •       Oversight of the financial system.
  •       Licensing, regulation and supervision of banks and selecting non – bank financial institutions
  •        Provision of settlement facilities and the regulation of the payment system.
  •        Issue and distribution of the national currency
  •        Compilation and dissemination of economic data and statistics.
  •        Acting as the banker and financial adviser to the Government.



  Agency functions



  •        Employees' Provident Fund Management
  •        Foreign Exchange Management
  •        Public Debt Management
  •        Regional Development
  •        Financial Intelligence
  •        Provincial Office Monitoring


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