Brief history of Central Bank of Sri Lanka

A story of resilience and adaptation

- 

On 28 August 1950, a very special type of bank was set up in Sri Lanka, with a simple ceremony. In the words of the first Governor of the Central Bank of Ceylon, John Exter, the simplicity of the ceremony was not intended to “belittle the importance of the occasion...” but to be celebrated a decade or two later, looking back at its achievements in raising the living standards of the people of the country.

It signalled the country's resolve to chart its own financial destiny, to stabilise its currency, and to foster growth through sound monetary policy. 75 years later, today..., we look back to explore its evolution and achievements, to assess if the high hopes and good intentions that prevailed in 1950 have borne fruit...

From Currency Board to Central Bank

FOR decades under British rule, the island’s money was governed by a Currency Board System, enacted under Ordinance No. 32 of 1884. While this system ensured currency stability, it constrained policy responses by tying the money supply directly to reserves, without any flexibility for nuance or support to growing domestic needs of a developing economy. Setting up the Central Bank of Ceylon was an initiative taken by Sri Lanka’s Finance Minister at the time, J.R. Jayewardene. This was a time when bank credit was provided primarily for the purpose of financing foreign trade; and the country wanted to look beyond the agricultural practices and excessive reliance on the traditional tea and rubber industries, to diversify into new sectors. For this, they sought to develop the banking system to adequately serve domestic businesses; to create employment opportunities and thereby enhance the livelihoods of the people of Sri Lanka.