Arjuna Mahendran: Role of the Central Bank in the Sri Lankan context Speech by Mr Arjuna Mahendran, Governor of the Central Bank of Sri Lanka, at the Sri Lanka Legal Summit 2015 “Governance, Regulation and Investment – The Way Forward“, Colombo, 5 March 2015. *  *  *  Ladies and Gentlemen, I am greatly privileged to address your distinguished audience on this topic with which I am reasonably conversant. The Central Bank of Sri Lanka today is a talking point among the public. Further, world over, central banks are in the public eye due to their specific role in staring off the global financial crisis, which caused a mini depression in 2009. The Central Bank of Sri Lanka is probably the single state authority with enormous influence in the economy and economic welfare of the general public. This influence comes from the powers and functions conferred upon the Central Bank from a number of statutes led by the Monetary Law Act (MLA) of 1949. In my view, when compared with statutes governing Central Banks in other countries, MLA is the single piece of legislation that provides for time invariant powers and functions of the Central Bank. The law has worked reasonably well during last 65 years without any major amendments. The drafting of the law in 1949 has been supervised by the renowned economist Mr. John Exter from the Federal Reserve Bank of New York who also in recognition of his stellar efforts was the first Governor of the Central Bank.
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.