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Message: <blockquote data-quote="piyals" data-source="post: 28006994" data-attributes="member: 240058"><p>Presenter's argument was not actually wrong there as I recall. As the government gets its revenue in LKR (as we pay tax in LKR), it has to purchase USD at the market exchange rate by paying LKR if it is getting it from the local market. So if the exchange rate is high, the government has to pay more LKR meaning it has to find more LKR by way of more taxes or printing money. In the budget, Government has to allocate funds to debt repayment which is mentioned in LKR at the market exchange rate. So exchange rate has a direct impact on the fiscal policy. Also note that purchasing USD from central bank reserve using printed money does not directly increase the inflation because that money is not released to market and thus it does not affect the money supply.</p></blockquote><p></p>

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