Dollar Account

Jan 23, 2009 (LBO) – The Sri Lanka Ports Authority (SLPA) is awaiting government approval to operate a ‘dollar account’ to cut mounting foreign exchange losses due to a strong rupee and an appreciating yen, a senior official said. “We are planning to get a dollar account. If we can get permission from central bank to operate a dollar account, then we can pay our loans in dollars,” said Priyath B Wickrama, chairman of the SLPA.

“Due to the dollar depreciating (against the rupee) our revenue has come down, because in 2007 the dollar was around 113 rupees, but in 2008 it was around 107/108, so that had some impact on our cash balances. Before the foreign exchange loss, we were operating at a profit.”

Exporter woes

Maintaining a dollar account gives protection to companies that operate on foreign exchange cash flows, which can be used to setoff their dollar debt repayments.

In other words dollar accounts mitigate currency risks, faced by exporters.

Dollar accounts can also give protection from soft peg central banking which overvalues the domestic currency. An overvalued currency reduces the competitiveness of domestic industries and makes imports cheaper.

Sri Lanka is a classic example of this