Criticism over Rajapaksa’s currency proposal

President Mahinda Rajapaksa’s proposal at this week’s SAARC summit in New Delhi for a common currency in the region has triggered a controversy with some economists saying it’s a ‘non-starter.’

“The president’s speech writers should know better than to include something that can’t happen in a region where in the first place there is no free movement of people,” said a top economist, who declined to be named.

A single currency means all countries abandon their own ones (in Sri Lanka the rupee) and opt for a common South Asian currency. He said the proposal, based on the Euro in Europe, has serious ramifications one of which is India and its Reserve Bank taking over as the single Central Bank in the region and controlling the region.

“What about Pakistan’s position on this? Was this discussed before even making a proposal?” he asked. Other economists said for a single currency, there should be harmony within the economies in the region and at a macro level, and economic integration. For example inflation should be at a common level compared to India in the 5-6 percent range compared to Sri Lanka in the 20 percent range. Fiscal deficits should also be similar.

They said it took 15-20 years to discuss and develop the Euro under the Maastricht Treaty even though there was a lot of harmony amongst economies in Europe.

“Proposals like this should have been discussed at different levels before putting it on the table at this high level,” an economist at a private bank, noted. The proposal was also criticized by the United National Party on many grounds including the fact that only parliament can decide to change the country’s currency. UNP leader Ranil Wickremesinghe said the party supports the free flow of goods but not a single currency for the region.