Central Bank of Sri Lanka

The Central Bank of Sri Lanka (CBSL) is the monetary authority of Sri Lanka, and the apex institution in the country's financial sector.

Established in 1950 under the Monetary Law Act No.58 of 1949, it is a government owned semi-autonomous body, and following the amendments to the  in December 2002, is governed by a five-member Monetary Board, comprising the Governor as chairman, the Secretary to the Ministry of Finance and Planning, and three members appointed by the President of Sri Lanka, on the recommendation of the Minister of Finance, with the concurrence.

Organizational structure

The Governor of the CBSL functions as its chief executive officer. The governor, two deputy governors and several assistant governors, along with the heads of departments, form the senior management of the CBSL. Functionally, the CBSL presently consists of 27 departments, each headed by a director (or equivalent), reporting to the governor or the deputy governor through an assistant governor, with the exception of the Management Audit Department, which reports directly to the governor.

Objectives CBSL

The CBSL’s focus and functions have evolved since its formation, in response to the changing economic environment. In keeping with trends in central banking, the objectives of the CBSL were streamlined by amending the MLA in 2002, to enable it to pursue two core objectives and to free it from the multiple objectives that were originally assigned to it.

The objectives of the CBSL are:

 • Maintaining economic and price stability

 • Maintaining financial system stability

 With a view to encouraging and promoting the development of productive resources of  Sri Lanka.

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 is interpreted to mean low and stable inflation. Experience has shown that the economy performs well when inflation is low and is expected to remain low. Interest rates are also low in these conditions. Such an environment allows the 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 CBSL uses monetary policy measures to control inflation.

Financial System Stability

A stable financial system is able to function smoothly, helping carry out economic activity in an uninterrupted manner.  Furthermore, a stable financial system generates a Conducive environment for savers and investors that encourages efficient financial intermediation and promotes investment and economic growth. Financial system stability can be defined as the ability of the financial system to perform its main functions of resource mobilization and allocation, risk management and the settlement of payments, effectively at all times, even under stressful circumstances. Therefore a stable financial system is typically characterized by the effective functioning of financial institutions, markets and infrastructure

The Monetary Board

The CBSL has a unique legal structure where the Monetary Board is conferred with the corporate status and vested with all powers, functions and duties. As the governing body, the Monetary Board is responsible for making all policy decisions and for the management, operation and administration of the CBSL.

The Monetary Board of the CBSL consists of five (5) members.

•        The Governor  

•        The Secretary to the Ministry of Finance (ex-officio)

•        Three (3) non – executive members. The Governor is the Chairman of the Monetary Board and also functions as the Chief Executive Officer of the CBSL.

The Governor and the non-executive Board members are appointed by the President, on the recommendation of the Minister of Finance.

The term of office of the Governor and the non–executive Board members is six (6) years. The quorum for Monetary Board meetings is three (3) members. The concurrence of three (3) members is required for decisions of the Monetary Board to be valid. However, in cases where an unanimous decision is required, the concurrence of all five (5) members is necessary. If there is a difference of opinion on monetary policy between the Minister of Finance and the Monetary Board, the Minister of Finance may inform the Monetary Board that the Government accepts responsibility for the Monetary Board adopting policies in accordance with the opinion of Government and direct the Monetary Board to adopt Government policy. There is a Monetary Board appointed 3 members Audit Committee chaired by a non–executive Board member. The other two members, who are required to have expertise in financial matters, have been drawn from outside the CBSL. The Audit Committee reviews and advises the Monetary Board on the CBSL’s financial reporting process, the adequacy and effectiveness of the internal controls and the scope and results of the internal and external audit.

 Functions CBSL

Core Functions the core functions of the CBSL are:

Ø Conduct of monetary policy.

Ø Conduct of exchange rate policy.

Ø Management of the official international reserves.

Ø Oversight of the financial system.

Ø Licensing, regulation and supervision of banks and selecting non – bank financial institutions.

Ø Provision of settlement facilities and the regulation of the payment system.

Ø Issue and distribution of the national currency.

Ø Compilation and dissemination of economic data and statistics.

Ø Acting as the banker and financial adviser to the Government.

Agency Functions

In addition, the CBSL also performs the following agency functions on behalf of the Government of Sri Lanka:

Ø Management of the public debt.

Ø Foreign exchange management.

Ø Fund management and acting as the custodian of the Employees’ Provident Fund.

Ø Facilitating financial inclusion.

Ø Financial intelligence services to detect and prevent money laundering and terrorist financing