LKR - Sri Lankan Rupee

Overview of Sri Lanka

Sri Lanka, formerly known as Ceylon, is an island nation in South Asia, located in the Indian Ocean, just across the Mannar Bay and Palk Strait from the Indian subcontinent.

Sri Lanka is a developing country ranked 78th on the Human Development Index. This is the fastest developing country in South Asia, with the second highest per capita income in the region.

Sri Lanka is also a founding member of SAARC, G77, and the Non-Aligned Movement, as well as a member of the United Nations and the Commonwealth.

However, the current economic crisis has led to currency collapse and high inflation, a humanitarian crisis due to shortages of essential goods, and protests in Sri Lanka in 2022, where people demanded the resignation of the president and the government.

Since September 2021, Sri Lanka has faced a severe economic crisis, with a decline in tourism due to the Covid-19 pandemic and internal issues.

The history of the formation and development of the Sri Lankan Rupee (LKR)

In 1825, the British pound became the official currency of Sri Lanka, replacing the Ceylon rixdollar at an exchange rate of £1 = 13+1⁄3 rixdollars, and British silver coins were recognized as legal tender. Banknotes denominated in pounds sterling were issued in 1827, replacing the previous rixdollar notes. In June 1813, the unexchanged rixdollar notes were canceled.

On September 26, 1836, the Indian rupee became the standard currency of Sri Lanka, and Sri Lanka rejoined the Indian monetary zone. After 1836, British pound banknotes continued to circulate alongside the rupee. Legal tender remained the British silver coins, and accounts were kept in pounds, shillings, and pence.

However, payments are made in rupees and annas at a fixed accounting rate of two shillings per rupee, that is, £1 = Rs. 10/-.

The Ceylon Bank is considered the first private bank to issue paper money in this island nation in 1844, and Treasury notes were withdrawn from circulation in 1856. The rupee was officially recognized as unlimited legal tender on June 18, 1869.

The rupee officially switched to the decimal system on August 23, 1871. Therefore, the rupee, valued at 100 cents, became the official currency and the only legal tender of Ceylon from January 1, 1872, replacing the British pound at the rate of Re. 1/- equal to two shillings and three pence of the British pound.

In 1884, after the Ceylon banking and currency crisis, during which the Orient Bank—the largest exchange bank in the island nation—faced severe liquidity issues, leading to a run on the remaining two exchange banks, the Chartered Mercantile Bank and the Madras Bank.

By April 2022, the political turmoil in Sri Lanka had caused the Sri Lankan rupee to become the worst-performing currency in the world, according to the Financial Times. The exchange rate of the currency fell to over Rs. 350/- = 1 USD as of April 29, 2022.

Sri Lankan Rupee (LKR) Denominations

Currently, the denominations of the Sri Lankan Rupee in circulation are:

• Coins: 25, 50 cents, Rs.1, Rs.2, Rs.5, Rs.10

• Paper money: Rs.10, Rs.20, Rs.50, Rs.100, Rs.200, Rs.500, Rs.1000, Rs.2000, Rs.5000

Sri Lankan Rupee (LKR) exchange rate

The Central Bank of Sri Lanka is implementing a managed floating exchange rate policy to adjust the exchange rate of the rupee. The policy is applied based on the supply and demand of the foreign exchange market. But the Central Bank can intervene in necessary cases to stabilize the exchange rate. The main objective of this exchange rate policy is to maintain stability in the economy, control inflation, and increase foreign exchange reserves.

The history of Sri Lankan Rupee (LKR) exchange rate

The exchange rate of the Sri Lankan rupee has gone through many important phases:

• Before 1825: Ceylon used the rixdollar as its official currency.

• 1825: The British pound was used as the official currency of Ceylon, replacing the rixdollar at an exchange rate of £1 = 13+1⁄3 rixdollars. Banknotes denominated in British pounds were issued in place of rixdollar banknotes.

• September 26, 1836: The Indian rupee was the standard currency of Ceylon, and the exchange rate between the rupee and the pound sterling was 2 shillings per rupee (£1 = Rs. 10/-).

• June 18, 1869: The rupee became the unlimited legal tender.

• August 23, 1871: The rupee transitioned to a decimal system, with the rupee worth 100 cents becoming the official and sole currency of Ceylon from January 1, 1872, replacing the pound sterling at the rate of Re. 1/- equivalent to 2 shillings and 3 pence sterling.

• In 1884: After the banking crisis, the Paper Currency Act was enacted to establish a currency board, linking the Ceylon banknote to the Indian silver rupee. This act allows for the mutual conversion between these two currencies at a nominal rate, contributing to the stabilization of the financial system in the region.

Currently, the Sri Lankan rupee operates under a regulated floating exchange rate system. The exchange rate of the Sri Lankan rupee is determined by supply and demand in the foreign exchange market, with intervention from the Central Bank of Sri Lanka when necessary to stabilize the exchange rate and control inflation.