CORRUPTION

 

Calls Grow for Investigation into Alleged Forex Rate Rigging During Ranil Wickremesinghe Presidency

By Staff Investigations

Colombo — Fresh allegations of foreign exchange rate manipulation during the presidency of Ranil Wickramasinha  have triggered renewed calls for a comprehensive, independent investigation into Sri Lanka’s banking sector at a time when the country was negotiating a critical rescue package with the International Monetary Fund (IMF).

According to multiple financial sector sources, concerns have emerged that certain private commercial banks, alongside a small number of officials within state-owned banks, may have engaged in coordinated practices to influence foreign exchange rates despite the existence of a Central Bank–supervised exchange rate mechanism. The alleged activity is said to have taken place during a highly sensitive period, when Sri Lanka’s foreign exchange regime was under international scrutiny and confidence in macroeconomic governance was central to IMF negotiations.

While no criminal liability has yet been established, the allegations have gained international traction after queries were reportedly raised by several European correspondent banks regarding irregular pricing patterns and unexplained spreads in Sri Lankan foreign exchange transactions.

A Controlled Regime Under Question

During the relevant period, Sri Lanka’s exchange rate system operated under the direct supervision of the Central Bank of Sri Lanka (CBSL), which maintained daily guidance and regulatory oversight intended to prevent disorderly market behaviour. In theory, this framework was designed to prevent speculative attacks, excessive volatility, and market manipulation.

However, banking insiders allege that the practical operation of the system diverged from its stated objectives. They point to instances where select banks appeared to quote rates significantly outside prevailing interbank norms, benefiting certain counterparties while disadvantaging importers, exporters, and the broader economy.

“These were not random deviations,” said one senior banking executive, speaking on condition of anonymity. “The patterns suggest coordination, or at least regulatory tolerance, at a time when the country could least afford opacity.”

IMF Negotiations and Heightened Sensitivity

The timing of the alleged forex irregularities has heightened their political and economic significance. Sri Lanka was engaged in delicate negotiations with the IMF, seeking emergency financing and debt restructuring amid a severe balance-of-payments crisis.

Under IMF programmes, transparency in foreign exchange markets and credible central bank independence are considered non-negotiable benchmarks. Any perception that exchange rates were being artificially influenced—either for political convenience or institutional profit—risks undermining the credibility of those negotiations.

Former IMF officials familiar with Sri Lanka’s programme framework note that sustained deviations between official guidance and market reality typically attract close scrutiny.

“Exchange rate credibility is fundamental,” said one former IMF adviser. “If international banks start asking questions, it usually means the data or behaviour doesn’t reconcile with what is being reported.”

International Red Flags

Sources indicate that the issue escalated beyond domestic concern after compliance and risk teams at European banks flagged unusual transaction pricing and settlement patterns linked to Sri Lankan counterparties. Such alerts are standard within the global banking system, particularly where capital controls, distressed sovereigns, or politically exposed environments are involved.

While no public enforcement action has been announced by overseas regulators, the very fact that questions were raised is significant. Correspondent banks play a critical gatekeeping role in global finance, and sustained doubts can lead to de-risking—cutting off access to international clearing systems.

Sri Lanka has previously suffered from reputational damage in global financial markets, making any renewed suspicion particularly consequential.

Political Accountability: Negligence or Cover-Up?

The controversy has inevitably focused attention on the political leadership of the time. Critics argue that if such practices occurred under a Central Bank–supervised regime, one of two explanations must apply: either regulatory failures were ignored, or there was deliberate political acquiescence.

Opposition figures and civil society groups are now asking whether the Wickremesinghe administration “closed its eyes” to irregularities in order to manage short-term currency pressures, or whether elements within the system acted independently but without consequence due to weak enforcement.

Supporters of the former president reject these claims, arguing that the period in question was marked by unprecedented economic stress and that maintaining currency stability required difficult and sometimes imperfect interventions. They caution against politicising technical monetary issues without hard evidence.

What an Investigation Would Need to Examine

Financial analysts say a credible inquiry would need to go beyond headline allegations and examine granular transaction-level data, including:

• Interbank forex trading records during the relevant period

• Pricing spreads between official guidance and executed trades

• The role of state-owned banks in setting market benchmarks

• Internal communications within banks and between banks and regulators

• Central Bank supervisory actions and enforcement decisions

Crucially, any investigation would need to establish whether alleged manipulation was systemic or limited to isolated actors, and whether regulatory authorities responded appropriately once warning signs emerged.

Central Bank Silence and Public Trust

As of publication, the Central Bank has not issued a detailed public response addressing the specific allegations. Observers warn that prolonged silence risks eroding public trust at a time when confidence in financial institutions remains fragile.

Sri Lanka’s recent economic collapse has already exposed deep governance failures across fiscal, monetary, and regulatory domains. Transparency advocates argue that this episode—real or perceived—underscores the need for stronger institutional accountability rather than discretionary governance.

The Unanswered Question

At the heart of the controversy lies a simple but unresolved question: what exactly happened in Sri Lanka’s foreign exchange market during one of the most critical periods in its modern economic history?

Was the system manipulated for institutional gain, politically tolerated for macroeconomic expediency, or simply overwhelmed by crisis conditions and poor oversight? Until these questions are addressed through an independent, technically rigorous investigation, doubts will persist—both domestically and internationally.

For a country attempting to rebuild credibility with global lenders and investors, those doubts carry a cost Sri Lanka can ill afford.