Sri Lankan port city dollarization confirmed, constitutional violation due to depreciation: SC
ECONOMYNEXT – The Supreme Court of Sri Lanka upheld the freedom of workers in the Chinese-backed port city of Colombo to receive wages in foreign currency and ruled that any violation of the constitutional rights of other outside workers came from the depreciation of the rupee.
By denominating economic activities, including wages, in a series of disintegrated foreign currencies, the port city of Colombo is said to be “dollarized” with multiple currencies.
Workers would therefore be protected from currency collapses due to policy errors or deliberate real effective exchange rate (REER) targeting by the Central Bank’s Monetary Board and the destruction of real wages and savings that impoverishes them. .
A petitioner who challenged a bill establishing the Port City Commission argued that the payment of wages in foreign currency deprived workers outside the zone of the same protection due to the depreciation of the rupee.
But the Supreme Court, also citing a previous case, said that any violation of Article 12 of the Sri Lankan constitution “would be the result of the depreciation of the currency and not a consequence of the bill”.
The Supreme Court accepted the view advanced by the Additional Solicitor General that even under current Sri Lankan laws, there was no prohibition against paying Sri Lankan wages in foreign currency.
The port city is expected to attract foreign talent and also stop the flow of talent to countries with monetary stability and better economic opportunities.
The Sri Lankan rupee has steadily depreciated from US $ 4.70 to US $ 202 since the creation of a Latin American-style central bank by a Federal Reserve official in 1950.
Since 2015, under discretionary “flexible inflation targeting” and “flexible exchange rate”, the depreciation of the rupee has accelerated from 131 to 203 for the US dollar, causing a severe monetary instability and production shocks.
Economists pointed out that flexible inflation targeting was a “corrupt” framework of the original.
Sri Lanka Has Corrupt Inflation Targeting, Targeting the Output Gap Does Not Comply With Monetary Law: Wijewardene
The onset of monetary instability also violates the monetary law’s objective of economic stability and price stability, critics said. (Colombo / May 19/2021)