The legal tender in Sri Lanka for domestic payments and settlements will remain as Sri Lanka Rupees (LKR) and the authorization of INR as a designated currency does not make INR a legal tender in Sri Lanka for domestic payments/settlements, the Central Bank clarified.
Issuing a clarification to erroneous reports, the Central Bank further said that any transaction executed between or among residents in Sri Lanka shall be in LKR, being the legal tender in Sri Lanka.
“In view of the expanding economic activities between India and Sri Lanka, particularly in promoting existing trade relations between the two countries, on several occasions CBSL has communicated to the Reserve Bank of India (RBI), the Monetary Authority of India, its willingness to authorise INR as a designated foreign currency in Sri Lanka,” the CBSL said.
Authorising INR as a designated foreign currency would bring many advantages to Sri Lanka including the facilitation of smooth banking transactions relating to INR especially for small- scale traders, encouraging traders to use banking channels for trade transactions over informal channels, reducing additional transaction costs associated with the dual conversion of INR into USD and thereafter into LKR and vice-versa.
“Accordingly, in August 2022, with the concurrence of RBI, INR was authorised by CBSL as a designated foreign currency in Sri Lanka. However, the use of INR as a designated foreign currency in Sri Lanka is subject to any restrictions imposed by RBI.”
CBSL from time to time, authorises selected foreign currencies as designated foreign currencies with a view to facilitating international trade and cross-border banking transactions. Commencing May 1979, CBSL has occasionally recognised designated foreign currencies.