The media reported that the Cabinet, subject to further discussion of the views, approved a new Act as an improved version of the present Monetary Law Act (MLA) to facilitate operations of the Central Bank (CB) more effectively and efficiently in line with present requirements. The CB Governor repeatedly stated that new legal provisions would be introduced to grant the autonomy to the CB as a part of new macroeconomic management policy framework agreed with the IMF

As the proposed Act is not available for public information, it is not possible to comment on the efficacy of the new Act as compared to the MLA that has been tested for 72 years with several amendments introduced from time to time to the MLA without hurting the its policy framework. The architect of the MLA is John Exter, an Economist of the US central bank, the Federal Reserve System established in 1913.

Therefore, this short article, hoping that legal officers of the CB are smarter macroeconomists than John Exter to draft a new Act to replace the MLA, is released to highlight the macroeconomic management framework introduced through the MLA to drive the post-independent Sri Lanka for economic development through an independent monetary system in place of the Currency Board System.

Salient Features of the MLA

The salient features of the macroeconomic framework laid down in the MLA for independent Sri Lanka are as follows.

• The MLA was enacted to establish the monetary system of Sri Lanka and the Central Bank as the authority to administer and regulate the system and to conform and impose upon the Monetary Board of the powers, functions, and responsibilities necessary for the purposes of such administration and regulation and to provide for connected matters.

• Accordingly, the Monetary Board is the corporate body and is authorized to determine several policies or measures in the MLA in addition to vesting it with the powers and functions of the Central Bank where the Monetary Board is generally responsible for the management, operations, and administration of the Bank. Therefore, the Monetary Board is the monetary authority in the country.

• Therefore, the MLA first established the monetary unit for the country and entrusted it with the Monetary Board for administration and regulation in terms of policy actions authorized in the Act. Accordingly, the standard unit of monetary value in the country is rupee, represented by the signs “Re.” and “Rs” and divided into one hundred units, each of which is called a “cent”. Then, provisions have been made to determine the par value and parities of the rupee.

• Accordingly, the MLA creates means of payments within the monetary unit where currency notes and coins are created as the legal tender for payments. Currency is the financial liability of the Central Bank and issued on behalf of the government.

• The national monetary policy is stipulated with principles and rules to ensure that the monetary system is used for macroeconomic objectives stipulated in the MLA. In the monetary policy, the Monetary Board is empowered to regulate the supply, availability and cost of money by having regard to the monetary needs of particular sectors of the economy as well as of the economy as a whole and to maintain the par value of the Ceylon rupee and so to regulate its exchange with other currencies as to assure its free use for current international transactions. These have been stipulated under domestic monetary stabilization and international monetary stabilization. The most part of the MLA relates to actions authorized on the national monetary policy as the MLA governs the monetary system of the country.

• The Economic Research Department and Director of Economic Research were created in the Central Bank as independent authorities to research on money and banking and other economic subject of general interest to guide the Monetary Board in policymaking and for information of the public.

• As the monetary system runs on the banking system, Bank Supervision Department and Director of Bank Supervision were created in the Central Bank to supervise banks to promote their prudence and stability. The Monetary Board also was given wide powers to regulate banks and resolve problems banks including emergency credit facilities (or lender of last resort). This was necessary as there was no bank supervision framework in 1950. However, since 1988 the Banking Act has been in place, but MLA bank supervisions and regulation powers have been in prime use.

• The Monetary Board was empowered to establish any other Departments and branches, agencies and correspondents in other places in the country or abroad for the proper conduct of the business of the Central Bank.

• Initial four objects of the Central Bank in the MLA were as follows.

1. The stabilization of domestic monetary values
2. The preservation of the par value of the Ceylon rupee and the free use of the rupee for current international transactions
3. The promotion and maintenance of a high level of production, employment and real income in Ceylon
4. The encouragement and promotion of the full development of the productive resources of Ceylon.

Amendments introduced in 2002 resulted the following two objects of highly conceptual context.

1. Economic and price stability; and
2. Financial system stability, with a view to encouraging and promoting the development of the productive resources of Sri Lanka.

The Central Bank is charged with the duty of securing the objectives so far as possible by action authorized by the MLA.

It is seen that analysts in the Central Bank as well as outside lightly talk about the objectives of the Central Bank as economic and price stability and financial system stability in their win interpretations without making any reference to the text “with a view to encouraging and promoting the development of the productive resources of Sri Lanka” which is the condition imposed on the objectives.

• Several fiscal functions were assigned to the Central Bank to ensure that the fiscal policy evolves in harmony with the monetary system. Fiscal agent, public debt management, financial advisor, banker of the government and limitation of advances to the government are some of them. Certain powers are assigned to the Monetary Board to issue directions to state institutions on fiscal operations and approve foreign loans of the government. All these are to ensure that their operations are not impacting the monetary conditions of the economy regulated in the monetary policy.

• Annual Report, financial statements, profit and loss calculation, distribution of net profit and capital have been stipulated in the MLA. As the capital is fully owned by the government, it is a state institution.

• The Minister of Finance is authorized to issue directions to the Monetary Board as to the monetary policy of greatest possible advantage of the people of the country in view of the opinion of government while the government taking its responsibility.

Overall Comment

In view of above highlights, it is necessary that the lawmakers fully understand the provisions of the MLA and its macroeconomic management framework legally implemented in Sri Lanka within the Constitution.

Some may comment that the current economic crisis is a result of lapses in the MLA to resolve new problems. It is not correct if the provisions relating to the macroeconomic management framework in the MLA are understood literally.

In fact, the economic crisis is a result of the failure of the Central Bank/Monetary Board to implement the monetary system in compliance with the MLA. The government debt and foreign currency problems are results of mismanagement of the monetary policy and fiscal functions in violations of the MLA.

Therefore, if the Monetary Board finds the MLA as the scapegoat and proposes a new Act to replace the MLA under the cover of the IMF, it is highly likely that the major provisions relating to the monetary unit, monetary system, banking stability, prudence of monetary policy instruments including their risks and diversity will be wiped out without any notice. 

If the macroeconomic management framework set out in the MLA is lost, the monetary system including the banking system will confront havoc in due course and operations of the Central Bank will encounter conflicts on daily basis. This will delay the recovery of the economy for decades. In that instance, the present Minister of Finance who submits the new Act to the Cabinet and Parliament will be encrypted in the economic history of Sri Lanka.

I hope that at least one expert who is knowledgeable in the MLA and global central banking literature will read the new Act carefully to ensure that the monetary system advances without major disturbances and crises. I know that it does not happen in the Central Bank as officials are only concerned about drafting sections allocated to them in micro manner in office hours. 

Since we do not have an expert like John Exter taking the responsibility of the new Act, somebody must be responsible for such a national task as lawmakers will not understand the technical meaning of any provisions in the Act, given their technicalities. Further, the relevant authorities must submit the Act to the Parliament with a report similar to the Exter Report carrying explanations for each provision.

It is highly advisable that if the new Act along with the Report is made available to the general public for information and comment because the proposed new Central Bank is not an institution belong to the new Monetary Board, but an apex public institution funded by the public to be responsible for securing the public confidence in Sri Lankan monetary unit and the monetary system behind it. This is because it is the elected government that should accept the responsibility of all policies of the state institutions.

 (This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 10 Economics and Banking Books and a large number of articles publish. 

The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)

The nation has been rattled by economic crisis, political upheaval and corruption, but many believe the dessert-making custom could spark joy in these bleak times

Yusra Farzan

As a child in Colombo, Sri Lanka, Oryan Cumaraiah-Misso remembers excitedly readying himself in front of a handheld meat grinder to crush cashews. It was his part in his family’s annual tradition of preparing a 60-year-old recipe for Christmas cake that had been passed down for generations. Christmas cake – a moist, decadent treat filled with nuts and fruit – usually kicks off the holiday season on the island nation, and for immigrants in the US, has become a way to preserve traditions from back home.

Sri Lanka’s Christmas cake is similar to the fruit cake, a quintessentially British dish, but has since evolved from its colonial roots. Like the British version, Christmas cake includes raisins and cherries, but also preserved ginger, the green vegetable chayote (or chow chow, as Sri Lankans call it) in sugar syrup, preserved melon (known as puhul dosi), candied peel, sultanas and aromatics like nutmeg.

“It definitely has been adapted to the Sri Lankan palate,” says Cumaraiah-Misso, 34, now a medical student living in Fort Worth, Texas. He still remembers being a child and the earthy aromas of cinnamon and cardamom intermingling with the sweet smell of rose essence while being elbow-deep in a 25-gallon bucket, mixing finely chopped fruit semolina with butter.

Marie Shirlene Fernando, 58, a caterer and mother of three living in Cerritos, California, remembers watching her aunt make the cake as a little girl. As a teenager, she took over the responsibility of making the stodgy treat, first for her ailing grandmother and later for her extended family to give as wedding favors. Now, she makes it with her 10-year-old granddaughter for customers across the United States. She carefully wraps the final product in parchment paper and brightly colored cellophane.

This year, one of the packages will be shipped to her family in Sri Lanka.

Given the country’s recent economic and political woes, she hopes the beloved dessert will help evoke unity and remind her mother, sister and extended family, of simpler times of gathering around the table to prepare the cake ingredients.

In Sri Lanka, as the country’s hotels gear up for the holiday season, some host cake-mixing parties, where people get a view of culinary staff combining the fruit and nut mixture with the wet ingredients in a custom-built, 9ft-deep barrel. The mix weighs more than 4,000lb. This year, one even took place aboard a naval ship. Fernando said she was watching the Galle Face Hotel’s recent Christmas cake mixing ceremony and thought to herself, “Oh, I’m so glad in spite of all that’s going on, they are still doing it.”

These traditions were in jeopardy this year as the nation battled its worst economic crisis since independence in 1948. Government corruption, financial mismanagement, sluggish economic growth since the pandemic, the depletion of foreign reserves and the war in Ukraine led to widespread blackouts, shortages of essential goods and school closures earlier this year. Islandwide protests ultimately led to the ouster of President Gotabaya Rajapaksa and the resignation of his brother Mahinda Rajapaksa as prime minister.

Inflation hit an all-time high of 69.8% in October before dropping slightly to 61% in November.

While Fernando is hopeful that the nostalgia of Christmas cake-making will provide some joy to celebrations, Cumaraiah-Misso worries about how the increased prices of ingredients will affect this longstanding tradition. On local Facebook groups, bakers lament the rising cost of ingredients, with some commenting that they haveve chosen not to make the treat this year and are readying themselves for an “austere Christmas”.

In a country ravaged by a 30-year civil war fought on ethnic lines and where, in 2019, at least 290 people died as bombs ripped through three churches on Easter Sunday, Christmas cake can unite across religions. It’s not just the 8% of the country’s Christian population that enjoy it.

“There are so many Buddhists, Muslims, friends who I have who are non-Christians. They love the Christmas cake, and they wait for a piece of Christmas cake,” Fernando said. She recalls them asking, “Where is my share? Did you keep me a piece?”

Indrika Arnold, a wealth adviser in Lebanon, New Hampshire, has found another set of fans for her Christmas cake: her American co-workers.

“I have some colleagues at work with whom I shared a piece, and they loved it. Now, they always ask, ‘When are you making your spice cake?’” she said. “I even mail it to some of my friends who no longer work with me.”

She only made a half recipe when she started making Christmas cake five years ago. Now she’s doubled it.

Arnold moved to the US 22 years ago but only started making the rich cake – as it’s known at other times of year – to share the tradition with her 12-year-old daughter. She has core memories of sitting around the kitchen table with her siblings and parents, cutting the preserved fruit into small pieces, and sneaking bits of raisins and cashews into her mouth when no one was looking.

“A week or two before Thanksgiving, I get all the ingredients, and we actually get together as a family and cut it and we all take turns mixing the booze and the honey,” she said about how she continues this tradition with her daughter and husband in the US. She then leaves the fruits to stew in the alcohol mixture for at least two weeks, kick starting the holidays in their home.

Like Arnold, Fernando also plans to gather around the table with her granddaughter to finely chop the fruit, which will then be soaked in a brandy mixture for one day.

“By making it every Christmas, it has become a part of celebrating Christmas as Sri Lankans overseas,” Fernando said.

The Guardian