Sri Lanka rupee closes flat, bond yields drop further

Thursday February 12, 2026 1:20 pm

ECONOMYNEXT – Sri Lanka’s central bank has warned local residents not to transact in US dollars, amid a trend towards more dollarized transactions, as people exercising such liberties are liable to end up in jail after ‘summary trial’ and pay fines.

“Central Bank of Sri Lanka (Central Bank) has noticed certain instances where residents in Sri Lanka transact within the country in foreign currency, rather than in Sri Lanka Rupees,” the monetary authority said in a statement.

“Further, merchants and the general public are informed that the Central Bank has not granted any authorization for local merchants to receive any payments from its local customers to the credit of any Foreign Currency Account by converting Sri Lanka Rupees into foreign currency, including payments via Electronic Fund Transfer Cards.”

Many central banks enforce their money monopoly through so-called legal tender laws, preventing people trapped in the particular geographical region from using money which inflates or depreciates less (sound money).

RELATED : Sri Lanka’s choices in unsound money, inflation in the historical context

Competition against money with a bad operating framework is prevented and the monopoly preserved through the use of coercive state power, using prisons and fines.

Sri Lanka’s central bank said those breaking the money monopoly and using dollars for transactions without its sanction will be fined 25 million rupees, and imprisoned for up to 3 years or both a fine and imprisonment.

At the moment the Sri Lanka’s central bank has won the legal right to inflate prices up to 7 percent a year through its monetary law, which was backed up the International Monetary Fund.

At 7 percent over three years prices would go up by 22.5 percent in the third year of a government before it faces elections and 31 percent in the fourth year.

At 5 percent over three years prices would go up by 15.7 percent over three years and 21.5 percent by the end of the fourth year.

Residents in Colombo Port City however is free of the inflating and depreciating rupee and there is full currency competition.

A monopoly in supplying dollars to the Treasury and other privileges (Government Acceptance) given to the Central Bank is also forcing the Treasury into a debt trap by borrowings repay interest and maturing installments especially when open market operations trigger forex shortages, critics have pointed out.

Foreign Currency Transactions between Residents in Sri Lanka

Foreign Currency Transactions between Residents in Sri Lanka

Central Bank of Sri Lanka (Central Bank) has noticed certain instances where residents in Sri Lanka transact within the country in foreign currency, rather than in Sri Lanka Rupees. In this connection, the Central Bank wishes to clarify that according to the provisions of the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBSL Act), all transactions executed between or among residents in Sri Lanka shall be made in Sri Lankan Rupees, unless otherwise authorized by the Central Bank for the purposes of the Foreign Exchange Act, No. 12 of 2017.

Further, merchants and the general public are informed that the Central Bank has not granted any authorization for local merchants to receive any payments from its local customers to the credit of any Foreign Currency Account by converting Sri Lanka Rupees into foreign currency, including payments via Electronic Fund Transfer Cards (i.e. Credit or Debit cards).

Accordingly, any person resident in Sri Lanka making payments to a merchant in Sri Lanka in foreign currency, and/or any merchant accepting payments in foreign currency from a person resident in Sri Lanka for the supply of goods/services without authorization of the Central Bank, commits an offence under the
CBSL Act and shall, upon conviction after summary trial before a Magistrate, be liable to;

➢ a fine not exceeding twenty-five million rupees (Rs. 25,000,000/-); or
➢ imprisonment of either description for a term not exceeding three (03) years; or
➢ both such fine and imprisonment

CBSL urges the general public and the business community to strictly adhere to these statutory requirements to avoid severe legal consequences.