W A Wijewardena: Central banking nearly six decades after John Exter Speech by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, Colombo, 20 August 2007. *  *  *  Nearly six decades have elapsed since John Exter, founding Governor of the Central Bank of Sri Lanka (then, Ceylon), enunciated his wisdom on and philosophy of central banking. He did so in a report titled “Report on the Establishment of a Central Bank for Ceylon” which he completed in 1949 as one-man commission on the request of the Government of Ceylon. His ideas on central banking could also be found in his speeches and press conferences during the formative years of the Central Bank. The Report, also known as the Exter Report was published by the Government as a Sessional Paper in November, 1949. The case for a central bank for Sri Lanka has been presented succinctly and cogently in this report. As a mark of appreciation of his work and in recognition of the need for placing a competent skipper on the newly formed organization, Exter was invited by the Government to form the new central bank as its first Governor. Exter is reported to have accepted this offer only for a limited period. True to his word, he resigned from the post of Governor in 1953 and returned to the States. The Exter Report consists of two parts. Part I presents a lucid summary of the significance of a central banking system for Ceylon.
Inappropriate reserve maintenance: A currency board has to maintain its reserves in sterling or in Indian rupee because of the long economic relationship with those countries or economic dependence on them. But, both currencies at that time were not convertible, due to exchange controls imposed in the UK and India in the postwar period. 3. Adjustment for the future: Ceylon had at that time applied for the membership of the IMF and one of the requirements to be met once the country gained the membership was to express the value of currency in gold or in a gold-convertible currency. Both sterling and Indian rupee were not gold-convertible. 4. Limited activities of a currency board: Currency boards do only the issue of currency. Hence, they cannot supervise banks or take action for the development or the stability of the financial system. 5. Inability to cope with a wider definition of money: Demand deposits have become an important part of money supply. Currency boards do not have any instrument to control demand deposits, while a central bank could do so through statutory reserve systems. 6. Meeting the needs of financial institutions: Financial institutions need liquidity, reserves and clearing and settlement facilities. Currency boards cannot meet them. 7. Inability to tackle crisis situations: Currency boards are “fair-weather” systems and not geared to tackle serious domestic or international crises. For instance, if a crisis demands an expansion of liquidity as its solution, currency boards cannot act in such situations. 8.