By: Staff Writer
November 03, Colombo (LNW): In a significant policy shift aimed at reducing reliance on the U.S. dollar, the Central Bank of Sri Lanka (CBSL) is advancing plans to introduce a direct renminbi (RMB) payment mechanism for trade with China. Governor Dr. Nandalal Weerasinghe said the move would modernise cross-border payment systems, lower transaction costs, and strengthen financial resilience in bilateral commerce.
At present, Sri Lankan importers convert rupees to U.S. dollars before settling payments in RMB, exposing them to multiple exchange-rate risks and higher processing fees. A direct RMB settlement pathway, Dr. Weerasinghe explained, would allow same-day transactions, eliminate intermediaries, and provide greater pricing stability for both importers and exporters.
To achieve this, the CBSL is exploring the establishment of a dedicated RMB clearing bank in Sri Lanka an offshore Chinese-authorised entity that would enable local banks and enterprises to open RMB accounts, settle payments directly, and conduct domestic RMB transactions without using foreign correspondent banks. Similar clearing facilities already operate in over 30 countries under Beijing’s global RMB expansion initiative.
The macroeconomic benefits could be considerable. According to the IMF, linking to an offshore RMB clearing bank can raise a nation’s share of RMB-settled transactions by up to six percentage points annually. For Sri Lanka struggling with constrained foreign exchange reserves and heavy import payments the move promises reduced dollar dependency, lower conversion costs, and improved reserve diversification.
China’s ambassador in Colombo has endorsed the initiative, noting that broader RMB use could support Sri Lanka’s recovery by mitigating foreign exchange volatility and boosting economic stability. Given that annual imports from China amount to several billion dollars, shifting part of that volume to RMB-denominated settlements would free U.S. dollar reserves for critical imports or debt obligations.
Dr. Weerasinghe also stressed that the system could attract more Chinese investors and exporters by providing smoother financial infrastructure and reinforcing trade confidence. However, he cautioned that the transition must be managed carefully to prevent over-reliance on China’s financial ecosystem.
Sri Lanka’s experience with a RMB 10 billion currency swap with the People’s Bank of China in 2021 highlighted both the opportunities and complexities of deepening financial ties with Beijing. A direct clearing mechanism could, in the long run, reduce the need for such emergency swap arrangements.
Ultimately, CBSL’s RMB settlement plan represents a bold step toward financial diversification and trade efficiency. If implemented with strong regulatory oversight and risk management, it could enhance Sri Lanka’s economic sovereignty while deepening strategic links with one of its largest trading partners.
