CBSL Governor: Reserve accumulation must be backed by sound fundamentals

Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe has said reserve accumulation cannot be viewed in isolation from the broader macroeconomic policy framework, stressing it must be underpinned by sound external sector fundamentals and an economy capable of generating and retaining foreign exchange.

Weerasinghe was delivering the keynote address on “Challenges in Building Foreign Reserves Amidst Geopolitical Uncertainties” at CBSL’s inaugural Reserve Management Conference, held on 10 and 11 September at The Kingsbury, Colombo.

Drawing on Sri Lanka’s experience during the 2022 economic crisis, the Governor said international reserves serve as a country’s first line of defense against external shocks, providing valuable time and policy space during periods of heightened vulnerability.

He noted that geopolitical developments have become an increasingly important consideration for reserve managers, with fragmentation, sanctions, trade tensions and disruptions to global financial markets influencing investment, liquidity and portfolio management decisions.

The keynote anchored a two-day conference that brought together around 50 speakers and participants from institutions including the Asian Infrastructure Investment Bank (AIIB), Asian Development Bank, Banque de France, Bank for International Settlements, Bank Indonesia, Bank Negara Malaysia, Bank of Korea, Bank of Thailand, Inter-American Development Bank, Reserve Bank of India, Swiss National Bank, the World Bank and the World Gold Council.

A Special Guest Address was delivered by Domenico Nardelli, Treasurer of the AIIB, who shared his perspectives on the evolving international financial landscape and its implications for reserve and asset management.

Key discussion areas over the two days included strategies for building and strengthening foreign reserve buffers, the implications of geopolitical fragmentation for Asia and the global economy, the evolving role of digital and tokenised assets in official reserves, the continued prominence of the US dollar in international reserve portfolios, and the role of gold and other alternative assets. Participants also explored how technological innovation and artificial intelligence could support reserve management through enhanced investment decision-making, market intelligence, portfolio optimisation and risk management.

CBSL said the inaugural conference marked an important milestone in its engagement with the global central banking community, providing a platform to consider the changing nature of reserve management and the importance of remaining agile, forward-looking and resilient in an increasingly complex global environment.