July 25, 2009 (LBO) – A 2.6 billion US dollar loan from IMF to Sri Lanka’s central bank was passed by the lender’s decision making executive board with key Western powers abstaining from voting for the program, media reports said.
The US has the largest voting block on the IMF and virtually runs the institution, which was created by its Treasury soon after World War II to help preserve a system of unstable dollar pegs called the Bretton Woods system.
Before 1950 Sri Lanka belonged to the ‘Sterling area’ of stable pegs where the monetary authorities of former British colonies did not have money printing powers, allowing exchange rates to be fixed.
With no money printing powers and no balance of payments troubles, a strong free trade area developed under the system of Sterling pegs, known as currency boards.
The US offered money printing powers to many under-developed countries and persuaded them to switch to a dollar peg, and set up the IMF to help stabilize the countries when excessive printing got them into trouble.
Sri Lanka’s central bank’s constitution was also written by a US Federal Reserve official. The country imposed tight exchange controls within three years of creating the central bank. Import an