History of Banking System
The Bank's Beginning
Prior to the establishment of the Central Bank, the Currency Board System set up under the Paper Currency Ordinance No.32 of 1884 functioned as the country’s Monetary Authority, though very narrow in its capacity. This system was deemed inadequate for a developing country upon gaining political independence.
Technical expertise to establish a central bank was sought from the United States of America (USA) in July 1948, with Mr. John Exter, an American economist from the Federal Reserve of USA being appointed to carry out this task.
The Exter Report on the rationale and the legal framework for a central bank was presented to the House of Representatives in November 1949. Along with this report, a draft bill with explanatory comments was presented as part II of the report. The Bill was passed by the House as the Monetary Law Act No. 58 of 1949 on 25 November 1949, paving the way for the establishment of the Central Bank of Ceylon and an end to the Currency Board System. 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 (CBSL) 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;
a) The
stabilization of domestic monetary values (maintenance of price stability).
b) The
preservation of the par value or the stability of the exchange rate of the Sri
Lankan Rupee (maintenance of exchange rate stability).
c) The
promotion and maintenance of a high level of production, employment and real
income in Sri Lanka.
d) The
encouragement and promotion of the full development of the productive resources
of Sri Lanka
However, 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 programmed in 2000 and the objectives were adjusted accordingly, bringing them down to two core objectives:
a) The
maintaining of economic and price stability
b) The
maintaining of financial system stability
History of Currency in Sri Lanka
Sri Lanka is a country
with a long history and a similarly long and rich economic history. A study of
that history will doubtlessly prove fruitful not only for economists but for
everyone in the society. Coins used through different time periods of a country
play an important role when studying the history of that country. Although
small in size, a coin has the ability of giving a wealth of information about
the economic and cultural history of the country where it was used, through
signs that remain on them.
Sri Lanka’s
currency-use can be divided into following periods.
i.
Anuradhapura Era
ii.
Polonnaruwa to Kotte Era
iii.
Kandy Era
iv.
Colonial Era
v.
Post-Independence Period since
Establishment of the Central Bank of Ceylon
Anuradhapura Era
Coins used in Anuradhapura Era
o
Kahapana
o
Swastika coins
o
Maneless Lion coins
o
Lakshmi Plaques
o
Kahavanu or Lankeshvara coin
o
Foreign Coins
Polonnaruwa to Kotte Era
Coins used in Polonnaruwa to Kotte Era
o
Massa Coins
o
Dambadeni Coins / Coins of the Middle
Ages
o
Lion Coins
o
Cetu Coins
Kandy Era
Coins used in Kandy Era
o
Angutu Massa/Koku Coins/ Laarin
o
Dambadeni kasi
o
Salli
o
Indian ‘Waragama’
o
Tuttu
o
Panama
o
Tangama
Colonial Era
Coins used in Portuguese Period
o
Saint type coins (St. Thome) - Gold
o
Tanga
o
Malakka - Silver
o
Cruzado
o
Ginimassa - Silver
o
Cakram
o
Panam (Gold/Silver)
o
Laarins
o
Gold Pagodi
Coins issued by the Central Bank of Ceylon
The
notes issued by the British were used in Ceylon up to 1951 and the coins were
used up to 1963. The first Sri Lankan coin series was introduced in 1963. The
Emblem of Ceylon was introduced in the obverse of this coin series. This series
consisted of coins in the denominations of:
o
One cent (aluminum)
o
Two cents (aluminum)
o
Five cents (brass)
o
Ten cents (brass)
o
Twenty-five cents (copper / nickel)
o
Fifty cents (copper / nickel)
o
One rupee (copper / nickel)
o
Rupees 5 (nickel / brass) and Rupees 2
(copper / nickel) circulation coins were introduced in 1984 instead of the five rupee and
two rupee notes.
o
In 2005, the Central Bank issued a new
series of circulation coins of Rs.5 and Rs.2 by changing their weight and
alloy, while Re. 1, Cts 50 and Cts.25 coins were issued by changing the size,
alloy, weight and color. These new coins
are circulating along with the previous issued coins.
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