Exchange Currency

Central Bank of Sri Lanka

The Central Bank of Sri Lanka is the monetary authority of Sri Lanka. It was established in 1950, two years after independence. The founder governor of the Central Bank of Sri Lanka was John Exter, while the minister of finance at the time was J.R. Jayawardena. Under the name Central Bank of Ceylon it replaced the Currency Board that until then had been responsible for issuing the country's money. It is a member of the Asian Clearing Union.

The Bank is responsible for the conduct of monetary policy in Sri Lanka and also has wide supervisory powers over the financial system. The Bank is engaged in developing policies to promote financial inclusion and is a member of the Alliance for Financial Inclusion.

Its credibility was called into question in 2007, due to allegations of political interference and institutional decay.

The Central Bank of Ceylon was set up by the post independence Government in recognition of the importance of an active monetary policy regime and a dynamic financial sector to support and promote economic growth.

Prior to the establishment of the Central Bank, functions relating to central banking were conducted by the Currency Board System that was set up under the Paper Currency Ordinance No.32 of 1884.

After gaining political independence, the Currency Board System was considered inadequate and unsuitable for meeting the needs of a developing country and an independent nation. Therefore, in July 1948, the Government of Ceylon requested the United States Government for technical expertise to set up a central bank, which resulted in Mr. John Exter, an economist from the Federal Reserve Board of the USA being appointed to carry out this task.

The Exter Report on the rationale and the legal framework for the Central Bank was presented to the Government of Ceylon in November 1949 and led to its formation. The Central Bank of Ceylon was established by the Monetary Law Act (MLA) No.58 of 1949 and commenced operations on August 28, 1950. It was renamed the Central Bank of Sri Lanka in 1985.

The Central Bank was given wide powers to administer and regulate the entire money, banking and credit system of the country. The Central Bank was also given the sole right and authority to issue currency and it also became the custodian of the international reserves of the country. The objectives of the Central Bank as specified in the MLA in 1949 were:

  • The stabilization of domestic monetary values (maintenance of price stability);
  • The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee (maintenance of exchange rate stability);
  • The promotion and maintenance of a high level of production, employment and real income in Sri Lanka;
  • The encouragement and promotion of the full development of the productive resources of Sri Lanka.

Therefore, in keeping with the worldwide trends in central banking and the rapid changes in international financial markets, consequent to the economic liberalization and the significant advancement in information technology, the Central Bank embarked on a modernization programme in 2000.

The Central Bank's focus and functions have evolved since its formation, in response to the changing economic environment. In keeping with trends in central banking, the objectives of the Central Bank were streamlined by amending the Monetary Law Act (MLA) in 2002, to enable it to pursue its core objectives and to free it of the multiple objectives that were originally assigned to it.

The Central Bank has two core objectives:
  • Maintaining economic and price stability;
  • Maintaining financial system stability.

Prior to the amendment of the law, the Central Bank had multiple objectives, which could sometimes be in conflict or be inconsistent with each other.

Meanwhile, a consensus had developed internationally that a central bank's primary goal should be the maintenance of price stability. As price stability is crucially dependent on stable macroeconomic conditions, one of the core objectives of the CBSL was therefore specified as "economic and price stability". Furthermore, as the experience of other countries has demonstrated, the stability of the financial system is crucial in improving the resilience of the economy. Hence, financial system stability was also identified as a core objective of the CBSL. The two objectives are correlated and complement each other. Ensuring financial system stability is of prime importance, as monetary policy is transmitted through financial intermediaries (institutions) to achieve price stability. Hence, the two objectives are in harmony and this enables the Central Bank to perform its main functions more effectively. The CBSL has been given a high degree of autonomy to achieve its objectives. In this task, the Bank closely liaises with the Ministry of Finance in making policy decisions and the Secretary to the Ministry of Finance is a member of the Monetary Board, which is the governing body of the CBSL.

Economic and Price Stability
Price stability safeguards the value of the currency in terms of what it will purchase at home and in terms of other currencies. Price stability or stable prices means low inflation. Experience has shown that the economy performs well when inflation is low and is expected to be low. Interest rates are also low in these conditions. Such an environment allows an economy to achieve its growth potential and fosters high employment. Free from the disruptive effects of high and variable inflation, both consumers and producers make economic decisions with confidence. Low inflation or price stability fosters sustainable long-term economic growth and employment. The Central Bank uses monetary policy measures to control inflation.

Financial System Stability
A stable financial system creates a favorable environment for depositors and investors, encourages efficient financial inter mediation and the effective functioning of markets, and hence, promotes investment and economic growth. Financial system stability means the effective functioning of the financial system (financial institutions and markets) and the absence of banking, currency and balance of payments crisis. Financial instability is caused by bank failures, excessive asset price volatility, and collapse of market liquidity or a disruption to the payments system. Financial system stability requires a stable macro-economic environment, effective regulatory framework, well organised financial markets, sound financial institutions and safe and robust payments infrastructure. The maintenance of financial stability entails the prevention, detection and reduction of threats to the financial system as a whole, through the surveillance of markets and financial institutions, oversight of the payments system and crisis resolution.

In order to achieve its core objectives as well as to discharge its responsibilities as economic advisor and banker to, and agent of the GOSL, the CBSL undertakes the following functions:

Core functions
  • Economic and Price Stability
  • Financial System Stability
Ancillary to core functions
  • Currency Issue and Management
Agency functions
  • Employees' Provident Fund Management
  • Foreign Exchange Management
  • Public Debt Management
  • Regional Development
  • Financial Intelligence
  • Provincial Office Monitoring

"A credible and dynamic central bank contributing to the prosperity of Sri Lanka".

Vision of the Central bank of Sri Lanka clearly indicates that the Bank is deeply committed to contributing to the prosperity of Sri Lanka. The term prosperity has a wide connotation: enhancement of the quality of life of people through sustainable wealth creation and inclusion of all segments of the society in enjoying the benefits of development.

The Central Bank would facilitate this process by ensuring economic and price stability and financial system stability while providing prudential and pro-active policy recommendations, as the Advisor to the Government on Economic Affairs. In doing so, the Bank would act with the highest degree of integrity and professionalism, earning respect for its objectivity and apolitical stance.

"Maintaining economic and price stability and financial system stability to support sustainable growth through policy stimulus, advice, commitment and excellence".

Mission of the Central bank of Sri Lanka emphasizes the need for the Bank to continuously fulfill its core objectives: economic and price stability (maintenance of a low level of inflation, while attaining macroeconomic equilibrium) and financial system stability (maintenance of stability in the financial system as a whole). The accomplishment of this mission would enable the Bank to create a conducive environment for economic agents to take a long-term view of the economy and make major decisions relating to resource allocation, production, labour supply, investments, consumption and savings, accordingly. Such a long-term focus is essential for sustainable growth and the alleviation of poverty.

The core objectives would be supplemented by appropriate policy recommendations for raising the output of the economy to the long-term potential and desired levels. The Bank's staff, the key input in its operations, would display the highest level of commitment, dedication and excellence in accomplishing the mission so that the Bank would be a model for others to emulate. The staff would also set appropriate benchmarks and service norms, when extending their services to the stakeholders. The Bank would always strive to upgrade its services, even to standards higher than international best practices.


  • Commitment to inspirational leadership - Providing strategic leadership to the financial sector;
  • Transparency in what we do - Being ready to explain the rationale behind our actions;
  • Accountability to our key stakeholders the public, government, financial institutions and employees - Taking responsibility for our policy advice and actions;
  • Integrity (trust,dependability,honesty) - Matching words with deeds by discharging functions ethically in the best interests of our stakeholders;
  • Commitment to professional competence - Dedication, quality and excellence in all we do;
  • Commitment to lifelong learning, knowledge sharing and innovation - Acquiring the required skills individually and collectively in a rapidly changing world;
  • Consistency, accuracy and timeliness of all actions taken by the Bank - Earning respect for what we do;
  • Managing and ensuring operational autonomy for policy formulation and implementation - Providing the organizational freedom for objective decisions.
  • Urgent and continuous commitment to results and outputs - Bringing a sense of urgency and timeliness into all our actions.

Organisational Structure
The Central Bank has a unique legal structure in which the Central Bank is not an incorporated body. In terms of the Monetary Law Act, the corporate status is conferred on the Monetary Board, which is vested with all powers, functions and duties. As the governing body, the Monetary Board is responsible for making all policy decisions related to the management, operation and administration of the Central Bank.

The Monetary Board of the Central Bank consists of five (5) members:

  • The Governor
  • The Secretary to the Ministry of Finance (ex-officer)
  • Three (3) non - executive members
The Governor is the Chairman of the Monetary Board and also functions as the Chief Executive Officer of the Central Bank. The Governor and the non-executive Board members are appointed by the President, on the recommendation of the Minister of Finance. The approval of the Constitutional Council is also required for the appointment of the non-executive Board members. The term of office of the Governor and the non -executive Board members is six (6) years. The quorum for Monetary Board meetings is three (3) members. The concurrence of three (3) members is required for decisions of the Monetary Board to be valid. However in cases where a unanimous decision is required, the concurrence of all five (5) members is necessary.

Useful links

Currency of Sri Lanka:
Sri Lankan rupee
List of Central Banks:
Central Banks
Official website of Central Bank of Sri Lanka:
Annual Report of the Central Bank of Sri Lanka:
Ministry of Finance and Planning:
Government of Sri Lanka: