Sri Lanka limits foreign currency possession by individuals to support dwindling forex reserve

Sri Lanka lowered the per capita foreign exchange holding limit from $15,000 to $10,000, in a desperate move to shore up the rapidly depleting foreign exchange reserves needed to finance the import of necessities, including food and fuel.

Sri Lanka is facing a severe forex crisis that forced the island nation to declare it defaulted on its international debt in April, becoming the first Asia-Pacific country in decades to default on its foreign debt.

With the aim of attracting foreign currency into the hands of the public in the formal banking system, Finance Minister Ranil Wickremesinghe issued the order under the Foreign Exchange Act.

“Reducing the amount of foreign currency held by a person in or resident in Sri Lanka from $15,000 to $10,000 or its equivalent in other foreign currencies,” an official statement said.

An amnesty period of 14 working days has been granted effective June 16, 2022 for depositing or selling excess foreign currency to an authorized dealer.

The move came more than a month after Sri Lankan central bank governor Nandalal Weerasinghe said the main bank is looking to lower its foreign currency holding limit to $10,000 from $15,000.

The governor said that even with $10,000 in hand, proof of possession must be provided.

Sri Lanka is facing its worst economic crisis since independence in 1948 which has led to severe shortages of basic items such as food, medicine, cooking gas and fuel across the country.

After Colombo announced defaults on loans in April, US bank Hamilton Reserve, the holder of Sri Lankan bonds, filed a lawsuit in US District Court in Manhattan over breach of contract.

Sri Lankans are languishing in long queues for fuel and cooking gas because the government is unable to find dollars to finance imports.

India’s credit lines for fuel and necessities have provided a lifeline until ongoing talks with the International Monetary Fund (IMF) lead to a possible bailout.

There have been street protests in Sri Lanka against the government since early April over its mishandling of the economic crisis.

On May 9, the political crisis saw an outbreak of violence that killed 10 people, including a member of Parliament.

The elder brother of President Gotabaya Rajapaksa, Mahinda Rajapaksa, was forced to resign as Prime Minister amid political and economic turmoil.

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