Build buffers before the storm, Central Bank Governor tells reserve managers

Sri Lanka’s Central Bank Governor Dr. Nandalal Weerasinghe used the inaugural Reserve Management Conference in Colombo on 10 September to deliver a pointed message to central bankers from across Asia and beyond: the world reserve managers once knew no longer exists, and the old playbook needs rewriting.

Addressing delegates at the opening of the two-day conference, themed “Building Buffers: Strategies for Reserve Management Amidst Heightened Uncertainties,” Weerasinghe argued that foreign reserves have shifted from being a technical balance-sheet item to a country’s frontline defence against a world defined by geopolitical fragmentation, sanctions, volatile capital flows and rapid technological change. Reserves, he said, buy a country the one thing it cannot manufacture during a crisis: time.

Sri Lanka’s crisis as a case study

Weerasinghe did not shy away from drawing on Sri Lanka’s own 2022 economic collapse as a cautionary tale. When reserves fell critically low, he said, the damage extended far beyond the central bank, constraining imports, complicating debt servicing, intensifying exchange-rate pressure and eroding confidence in the economy. The most damaging consequence, he noted, was the loss of policy space to respond to further shocks.

Since then, Sri Lanka has pursued macroeconomic stabilisation and structural reform, and its external sector has strengthened considerably compared with the depths of 2022 and 2023. But Weerasinghe cautioned against reading that recovery as linear. Reserves accumulated during good times, he said, can be drawn down quickly once a shock hits, a pattern he noted holds true even for countries with comparatively high reserve levels.

Rethinking what “enough” reserves means

A central theme of the address was that reserve adequacy can no longer be reduced to a single metric like months of import cover. Weerasinghe called for a broader risk-management framework accounting for short-term external liabilities, debt-service obligations, capital-flow volatility, contingent liabilities and exchange-rate flexibility. The real question facing central banks, he argued, is not how much reserves a country holds today, but how resilient, accessible and quickly mobilised those reserves are when an unforeseen shock arrives.

He extended that logic to currency composition and the ongoing debate over de-dollarisation. While the US dollar remains dominant in reserve portfolios due to the unmatched depth of its financial markets, Weerasinghe warned against treating diversification as a goal in itself. A diversified portfolio that cannot be liquidated quickly under market stress, he said, offers little real protection. The right currency mix, in his view, depends on each country’s trade patterns, external liabilities and risk tolerance, and no universal formula applies.

Gold, AI and the limits of technology

The Governor also addressed the renewed global interest in gold as a reserve asset, framing the relevant question not as whether central banks should buy gold, but what role it should play given its limited liquidity compared with cash or government securities.

On artificial intelligence, Weerasinghe struck a note of measured caution. While AI and machine learning can strengthen forecasting, scenario analysis and market monitoring, he warned that algorithms trained on historical data may fail to capture emerging risks when structural conditions shift. His guidance to the room was direct: AI should augment the judgement of reserve managers, not replace it, since accountability for national reserves must remain with people.

A call for regional cooperation

Weerasinghe closed by framing reserve management as a shared regional challenge rather than a national one, pointing to the support Sri Lanka received from the Reserve Bank of India during its own period of stress as evidence that relationships built through forums like this conference can matter as much as any single strategy during periods of stress.

He left delegates with three messages: that geopolitical uncertainty has permanently broadened the definition of risk facing reserve managers; that building reserves is a long-term process with no shortcuts, requiring sound fundamentals and institutional discipline; and that resilience cannot rest on any single asset, currency or model, but on a combination of adequate buffers, prudent diversification, strong liquidity and international cooperation.

“We do not build reserves because we expect a crisis,” Weerasinghe told the gathering. “We build reserves because we cannot know when the next crisis will come.”

The Reserve Management Conference 2026 continues in Colombo through 11 September, with technical sessions expected to tackle currency diversification, geopolitical risk and the role of gold and emerging asset classes in official reserve portfolios.