Therefore, at times of such excessive domestic demand through fiscal dominance, the Central Bank of Sri Lanka intervened in the foreign exchange market to defend the exchange rate from depreciation. Although this was done with the good intention of maintaining macroeconomic stability in difficult times, experience 11  repeatedly showed that managing the exchange rate extensively was always associated with a substantial loss of limited international reserves followed by a large depreciation. The most recent of such events were in 2011/2012 and 2015. During the 2011/2012 episode, the Central Bank supplied US dollars 4.2 billion to the market on a net basis, while the Central Bank supplied US dollars 3.2 billion to the market on a net basis during the year 2015. In spite of these considerable losses of reserves, the rupee depreciated against the US dollar by 13.5 per cent by the end of the 2011/2012 episode and by 9.0 per cent during 2015. Since then, the Central Bank has explicitly announced that international reserves will not be used to defend an overvalued exchange rate. Instead, the Central Bank intervention in the foreign exchange market will aim to buildup international reserves. So far during 2017, the Central Bank has been able to purchase over US dollars 1.3 billion from the market on a net basis for this purpose, and improved market confidence is shown by the limited depreciation of the currency this year.
It has been the endeavour of this report to propose a type of central bank which, with proper skill and understanding in its management, will establish monetary conditions in Ceylon that may make possible, as never before, the fuller use of the nation’s human and material resources and a rising standard of comfort for all.” History has judged us before! I will leave it up to you to judge us in future as well! Bibliography Bernanke Ben S. and Michael Woodford (eds), The Inflation Targeting Debate. Cambridge Massachusetts: National Bureau of Economic Research Studies in Business Cycles, 2005. Bernanke, Ben S., Thomas Laubach, Frederic S. Mishkin, and Adam S. Posen (eds), Inflation Targeting. Princeton: Princeton University Press, 2001. Blinder, Alan, Central Banking in Theory and Practice, Cambridge Massachusetts: The MIT Press, 1996. Central Bank of Sri Lanka, 40th Anniversary Commemorative Volume of the Central Bank of Sri Lanka, 1950-1990. Colombo: Central Bank of Sri Lanka, 1990. Central Bank of Sri Lanka, 60th Anniversary Commemorative Volume of the Central Bank of Sri Lanka, 1950-2010. Colombo: Central Bank of Sri Lanka, 2011. Central Bank of Sri Lanka, Annual Report. Various Years. Central Bank of Sri Lanka, Road Map: Monetary and Financial Sector Policies, Various years. Colombage, Sirimevan, The Political Economy of Central Banking in Sri Lanka. Prof. H. A. de S. Gunasekera Memorial Oration, University of Peradeniya, October 2017. 23  Government of Ceylon, Sessional Paper XIV: Report on the Establishment of a Central Bank for Ceylon (Exter Report). 1949.