In his report submitted to the Government on establishment of the Central Bank, he stated as follows. I quote “the broad powers given to the Central Bank of Ceylon under the draft bill in Part II of this report are commensurate with the magnitude of this responsibility. The Bank should not be hampered by rigid limitations which might prevent it from fulfilling its purpose. When a new central bank is being established it is impossible to predict the course of its development. This will depend upon the environment within which it works and upon those who, determine its policies. Many of its powers may go unused for long periods, because they are designed for particular situations, some of which may never arise. Others are intended for use only in crises or to forestall a crisis, but prudence dictates that they be included now, so that they will be at hand in case of need. It would be foolhardy to assume, with the record of the war – and depression – induced economic crises of the last 30 years plainly before us, that the Ceylon economy will somehow escape such crises in the future. The safer assumption is the one underlying the drafting of the present bill: it is better in an uncertain economic world to be prepared for any eventuality. Many features of the draft bill have been developed in the Western Hemisphere. Others are found in one form or another in central banking legislation within the Commonwealth.
These days, some people are concerned about the fall of this international reserve. Some complain that the reserve contains funds mobilized by the Government through foreign borrowing and not from net receipts from trade. Those views are subject to various technical arguments. What the Central Bank does is; it buys excess foreign exchange in the market and sells out of its reserve to meet the deficit in the market in order to maintain the exchange rate at a desirable level, given the relevant economic circumstances. If the reserve falls short of desired level, the Central Bank has the standard arrangements to replenish it. This reserve at $ 7 billion at present is adequate to pay for four months of imports or 70% of the country’s short-term foreign borrowing if the necessity arises. The reserve is there for use in rainy days, not for showing off imaginary visits of a country living within its means. Fifth, Supply of payments and settlements services Economic transactions are essentially the receipts and payments made through cash and non-cash methods. Non-cash payments such as cheques and fund transfers need systems to ensure that the payment is received by the due receivers. The Central Bank maintains cheque clearing through LankaClear system. That is why you get your cheque realized on the same day, if deposited before 12.00 noon. Further, all fund transfers among the banks are cleared and settled through the Central Bank’s RTGS system. In the RTGS, the Central Bank provides intra-day funding to deficit banks to settle payments.