October 7, 2013John Exter to the Central Bank:Don’t engage in commercialbusinesses
The father of the SriLanka’s CentralBank, John Exter,was emphatic on one point when hedrafted the MonetaryLaw Act or MLA,the legislation under which the CentralBank has beenestablished. Going by the traditionalcentral banking principles, in theGeneral Section of the Exter Report, he prohibited the Central Bank to engage in commercial businesses. This prohibition has got into the MLA as Section 117 of the Act in the form of threeseparate sub sections exactly as recommended by Exter.
The Central Bank is not to engage in trade or commercial businessesThe first sub-section says that the Central Bank shall not engage in ‘trade or have anydirect interest in any commercial, industrial or other undertaking’. What this means isthat the Central Bank cannot run, if a very simple example is considered, a dairy farmor own shares of a dairy farm owned by someone else. However, as a practicalmeasure, the Central Bank has been permitted to own a business enterprise if it has toacquire it in the process of recovering any loan it has granted to, say, a commercialbank. But John Exter has advised the Central Bank and it has been provided for inMLA that the Bank should dispose of that enterprise as soon as possible. In other words, the Central Bank should not continue to own business enterprises.