Sri Lanka central bank has warned residents and businesses against conducting local transactions in US dollars, cautioning that violations of monetary law could result in substantial fines and imprisonment. The directive reinforces the rupee-only settlement rule under existing legislation.
Sri Lanka central bank enforces rupee-only rule with fines and jail terms
Sri Lanka central bank has issued a firm warning to residents and businesses against conducting local transactions in US dollars, stressing that violations of the country’s monetary laws could result in heavy fines and imprisonment. The move comes amid a noticeable rise in dollar-denominated payments within the domestic economy.
In a formal statement, the monetary authority said it had observed instances where residents were transacting within Sri Lanka in foreign currency instead of the Sri Lankan rupee. The regulator clarified that under the Central Bank of Sri Lanka Act, No. 16 of 2023, all transactions between or among residents must be executed in rupees, unless specific authorization is granted under the Foreign Exchange Act, No. 12 of 2017.
The central bank further emphasized that it has not permitted local merchants to accept payments in foreign currency from domestic customers by converting rupees into dollars or other currencies. This includes payments made through Electronic Fund Transfer (EFT) cards such as credit and debit cards, where settlement occurs in foreign currency accounts.
According to the statement, any resident who makes payments in foreign currency to a merchant in Sri Lanka, or any merchant who accepts such payments without prior authorization, commits an offence under the CBSL Act. Upon conviction after a summary trial before a Magistrate, offenders face a fine of up to Rs. 25 million, imprisonment for up to three years, or both.
The warning underscores the central bank’s determination to enforce the country’s legal tender framework. In most jurisdictions, central banks maintain a monopoly over the issuance and regulation of domestic currency, supported by legal tender laws. These statutes require that transactions within the country be settled in the national currency, reinforcing monetary sovereignty and policy control.
The recent statement appears to be a response to growing informal dollarization trends. In periods of currency volatility or inflation, residents may gravitate toward more stable foreign currencies for savings and transactions. However, authorities argue that parallel currency use can undermine monetary stability, distort price signals, and complicate exchange rate management.
Under Sri Lanka’s current monetary framework, the central bank operates with a policy mandate that allows inflation to be managed within a defined range. Critics have argued that persistent inflation erodes purchasing power and encourages residents to seek alternatives perceived as more stable. Nonetheless, policymakers maintain that adherence to the rupee-based system is essential for maintaining macroeconomic order and preventing systemic imbalances.
The Sri Lanka central bank also highlighted that only transactions explicitly authorized under the Foreign Exchange Act are exempt from the rupee-only requirement. Such authorizations are typically limited to specific sectors or regulated activities, including certain international trade or investment operations.
An exception to the general rule exists within the Colombo Port City, where a distinct financial regime permits greater currency flexibility and competition. Outside that special jurisdiction, however, residents and businesses remain subject to the rupee settlement mandate.
Economic analysts note that enforcing currency laws is a common practice globally. Monetary authorities often rely on statutory penalties, including fines and custodial sentences, to deter unauthorized foreign currency usage. The objective is to prevent capital flight, protect foreign exchange reserves, and preserve the effectiveness of domestic monetary policy instruments.
At the same time, some observers argue that excessive restrictions on currency choice can incentivize informal markets. They suggest that long-term stability depends not only on legal enforcement but also on maintaining confidence in the domestic currency through prudent fiscal management, transparent policy communication, and disciplined monetary operations.
The central bank’s statement concludes with a direct appeal to the public and the business community to comply strictly with statutory requirements. By reiterating the legal consequences of non-compliance, the regulator signaled its readiness to pursue enforcement measures where necessary.
As Sri Lanka continues its economic stabilization efforts, the balance between regulatory enforcement and market confidence will remain central to the debate. For now, the message from the monetary authority is unambiguous: domestic transactions must be conducted in Sri Lankan rupees unless expressly authorized otherwise.