Currency Stability Helps Recover Lost Value
Sri Lanka’s Central Bank has successfully restored billions of dollars in lost value to the Employees’ Provident Fund (EPF) between 2023 and 2024 by maintaining a stable rupee and implementing sound monetary policies, according to official data.
When Central Bank Governor Nandalal Weerasinghe assumed office in 2022, the Sri Lankan rupee had collapsed from 200 to 360 against the US dollar, slashing the EPF’s dollar value from $15.8 billion at the end of 2021 to just $9.53 billion. This sharp devaluation effectively inflicted a $6.7 billion “haircut” on workers’ retirement savings.
Recovery Through Sound Money Principles
Under Weerasinghe’s leadership, the Central Bank removed restrictive policies and allowed the rupee to appreciate gradually. By the end of 2023, the rupee had strengthened to 332 per US dollar, lifting the EPF’s value back up to $12 billion. In 2024, further rupee appreciation to around 293 per dollar helped push the EPF’s value to $14.96 billion, recovering $5.43 billion of the $6.29 billion lost during the 2022 currency crisis.
Despite minimal net inflows—only 46.3 billion rupees were added in 2024 compared to the fund’s 4 trillion rupee size—the EPF’s growth has largely been fueled by strong investment returns of about 450 billion rupees annually.
By maintaining a stable currency, the Central Bank has preserved not just the fund’s principal value but also its investment earnings, a key characteristic of a currency that serves as a true “store of value.”
Impact of Monetary Stability on Investments
Sri Lanka’s experience mirrors practices in East Asia, where central banks prioritize monetary stability over “competitive devaluations” favored by some Western economic models. The result is stronger investor confidence, reduced borrowing costs, and sustainable long-term growth.
Sri Lanka’s controversial domestic debt restructuring, which involved extending the maturity of EPF-held securities without cutting their face value, had sparked concerns. However, analysts note that if monetary stability holds, these term-extended securities could yield better returns over time than shorter-term rollovers at fluctuating market rates.
As inflation fell to 1.7% in 2024, the real return on EPF investments soared to 12.7%, a dramatic turnaround from the -48% real return recorded during the height of the 2022 crisis.
A Lesson in Classical Economics
Economists point out that the external and domestic value of a currency are inseparable, emphasizing that stable exchange rates are essential for preserving the purchasing power of money. Drawing on the classical insights of David Ricardo, modern advocates argue that disciplined monetary policy remains the foundation for sustainable economic recovery and wealth preservation.