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Message: <blockquote data-quote="piyals" data-source="post: 27487015" data-attributes="member: 240058">"නිශ්චිත වටිනාකමකින් යුතු දෙයක් (විදෙස් සන්චිත) වෙනුවෙන් නෝට්ටු නිකුත් කරනවා කියලා හිතමු." - This doesn't make much sense unless Government is buying USD from CBSL reserves with printed LKR.The Government prints money to meet its expenses when it can not earn the required level of funds from tax and other revenues. Exchange rates are determined by the demand and supply of respective currencies just like the price of any other physical good in a competitive market.Let me give you a simple crude example; let's assume we get USD inflows of USD 1 billion per month (from exports and foreign worker remittances) and the current USDLKR exchange rate is 200; and then the government prints LKR 100 billion to pay for a salary increase for the Government servants. Then this money gets into the hands of the people (Government servants) and people start spending this in the market. This creates an increase in the demand for Goods and services in the local market. However, most of the product and services in the local market are imported or else they are manufactured using imported raw materials. This creates a higher demand for imports and therefore more businesses are demanding USD from Banks for their imports. However our USD supply has not increased and it is still at 1 billion (or less). Now there is a higher demand for USD with the same supply of USD. So, naturally this creates an imbalance of demand and supply resulting an increase of USDLKR rate.What happened in the recent times in Sri Lanka was that the Government (via CBSL) was artificially holding the exchange rate at 200. If I continue the previous example, the CBSL increased the supply of USD to the market by releasing some of its USD reserves to the market. This significantly reduced their reserves. We actually lost around USD 4-5 billion in recent times by trying to artificially holding on to the exchange rate at 200."අනිත් ප්‍රස්නේ ලෝකයේ විවිද මුදල් ඒකකවල වටිනාකම අවප්‍රමාන වීම් මනින්නේ ඇ. ඩොලරයට සාපේක්ශවද?" - Not necessarily. You can have an exchange rate for any other currency; again it is simply decided by the demand and supply unless the Government intervenes in the free float.</blockquote>

Verification: Hath warak paha keeyada? (hatha wadikireema paha)

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