Claim: The recent ‘printing’ of 100 Billion Sri Lankan rupees by the Central Bank of Sri Lanka indicates that the country under the new President is printing money unnecessarily like in 2022 under the previous Rajapaksa-led Government, putting the economy at risk once again.
Fact: This claim is misleading. The Central Bank regularly releases money through Open Market Operations to maintain liquidity at commercial banks and other entities. The high levels of money printing in 2022 and before were not done for liquidity reasons but to fill the gap between government expenditure and income (the government budget deficit), which led to increased inflation and economic instability.
Several social media users are posting on Twitter and other social media platforms such as TikTok and Facebook, alleging that the Central Bank of Sri Lanka is “printing” over 100 billion Sri Lankan rupees putting the country at risk of economic instability again.
Sharing the claim on Twitter, a user by the handle @shanki_thewitch wrote in Sinhala, “There is no use of a government if it can’t print some money in a hurry…hmm. !!” (Archive link can be seen here)
Another user by the name Panchali Panapitiya wrote on her FB post “So Sri Lanka starts printing money again… it’s only been 36 days.”
Other users also share the same claim on multiple social media platforms including Facebook, TikTok, and X. A few examples of more social media posts can be found here, here, and here.
Given the previous government’s practice of using the Central Bank’s money to finance government budget deficits in Sri Lanka, which eventually led the country towards an economic crisis in 2022, we decided to check the veracity of these claims.
Fact Check/Verification
Did the Central bank issue 100 billion Sri Lankan rupees?
Through keyword searches, the Newschecker team found that the Central Bank had indeed issued money amounting to 100 billion Sri Lankan rupees. According to this article by EconomyNext, as of 25 October 2024, “Sri Lanka’s central bank has injected around 100 billion rupees against domestic assets through multiple liquidity tools by October 25 official data show, driving up excess money in the banking system to over 190 billion rupees.”
However, it must be noted that this issuing of liquidity was not done via the literal printing of currency notes, as is being widely claimed.
This was done through 36.16 billion rupees earned from an overnight auction and 70 billion rupees earned from another auction of 7 days via Central Bank treasury bills and bonds. Both auctions ended on 25 October 2024. A treasury bill and bond can be purchased by any local and international person or institution as a way of investing in the Central Bank using Sri Lankan rupees. Similar to a fixed deposit, upon maturity of the investment, a return is paid to the investors by the Central Bank. This increased the availability of liquid cash. This process falls under a system of banking operations commonly called Open Market Operations.
What are Open Market Operations?
The EconomyNext article cited above mentions that the most recent 100 billion Sri Lankan rupees was “printed” through Open Market Operations. Newschecker reached out to Umesh Moramudali, an academic at the University of Colombo, who specialises in Economics and debt restructuring in Sri Lanka to understand more about Open Market operations.
“The idea of Open Market Operations and standing lending facilities is to support commercial banks that need money for their day-to-day activities, especially when they face situations where they are a little short of cash. So, in those scenarios, commercial banks can borrow money from the central bank and/or use some of the government securities they have as security. This is a day-to-day operation of the central bank where they support commercial banks when they need, in economic terms, liquidity,” he explained.
Clarifying that this is different from actual printing of more currency notes, Moramudali said, “What the media reports refer to is not the increase or not literally printing currency notes, but the central bank providing money to commercial banks in the short term. This is a normal operation. From certain economic theoretical perspectives, it is considered as money ‘printing’ because some form of new money in the central bank comes into the banking system through Open Market Operations.”
Upon the issuance of liquidity via Open Market Operations, such money is disbursed to commercial banks for their daily operations for the benefit of their clientele.
Was the money issued to finance a government budget deficit?
There is no indication that the two auctions were conducted at the behest of the newly appointed President Anura Kumara Dissanayake, Prime Minister Harini Amarasuriya, or Minister of Foreign Affairs Vijitha Herath, who are all from the majority of the NPP/JVP coalition. There is also no indication that this was done to finance the government’s budget deficit.
Moreover, the Central Bank of Sri Lanka Act, No. 16 of 2023 prohibits the government from intervening in any Central Bank-related daily matters, which includes liquidity support to commercial banks and more. The Act highlights that the Central Bank’s autonomy must always be respected. Section 5 (3) of the act says,
“The autonomy of the Central Bank shall be respected at all times and no person or entity shall cause any influence on the Governor of the Central Bank or other members of the Governing Board and Monetary Policy Board or employees of the Central Bank in the exercise, performance and discharge of their powers, duties and functions under this Act or interfere with the activities of the Central Bank.”
Why was this money issued now?
A clarification issued by the Central Bank Domestic Operations Department on October 29, 2024, on the recent concerns says that this 100 billion Sri Lankan rupees was issued via Open Market Operations.
“The liquidity (money) injected through OMOs is a routine central banking function aimed at managing adequate liquidity in the banking system for the purpose of stabilising the short-term interest rates in the economy and ensuring price stability, and hence it should not be grossly misinterpreted as ‘money printing,’” the statement says.
The statement makes it clear that the ‘money printing’ mentioned in the article from EconomyNext has been misinterpreted by social media users to mean financing the government budget deficit through the literal printing of currency notes.
When does the Central Bank typically inject more money?
The Central Bank typically issues money on several occasions. According to a newspaper article co-written by Dr Lasitha Pathberiya (Additional Director) and Shakthi Rajakaruna (Senior Economist) of the Economic Research Department of the Central Bank, these occasions are,
- The purchase of Government securities by the Central Bank. Referred to as monetary financing, between 2019 and 2022, the leadup to the severe economic crisis in Sri Lanka, this was carried out to finance the deficits in the Government budget. However, the Central Bank of Sri Lanka Act No. 16 of 2023 (CBA), enacted in September 2023, prohibits monetary financing, as quoted above, since the Government cannot use an autonomous Central Bank’s money to fill its budget deficits.
- Providing lending/loan facilities to licensed banks in emergencies and for their daily operations
- Conducting open market operations by selling/auctioning Treasury bills and Treasury bonds
- Providing money for purchases of foreign exchange from the domestic foreign exchange market
- Financing the Central Bank’s operational expenses
Conclusion
Thus, it is clear that the recent issuance of 100 billion Sri Lankan rupees to the economy for its daily operations via Open Market Operations is being misinterpreted by social media users to mean money printing to finance the government’s budget deficit (or monetary financing). It is a misconception that this scenario is similar to what led to the 2022 economic crisis. During that time, high levels of money printing were done not for liquidity reasons but to fill the gap between government expenditure and income (the government budget deficit), which led to increased inflation and economic instability.
Result: Missing context
Our Sources
Report on the Central Bank printing 100 billion Sri Lankan Rupees on EconomyNext on October 27, 2024
An Explanatory Note on Central Bank of Sri Lanka’s Open Market Operations (OMOs) and Money Printing issued by the Domestic Operations Department of the Central Bank, October 29, 2024
The Central Bank of Sri Lanka Act, No. 16 of 2023
Article co-written by Dr Lasitha Pathberiya and Shakthi Rajakaruna of the Central Bank’s Economic Research Department, published in Daily FT, September 13, 2024
The statement of Umesh Moramudali, received on November 3, 2024
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