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by Ravi Ladduwahetty

If the seven South Asian nations decide to merge their thinking, there is enormous scope, taking into consideration its power base of a 1.2 billion population. There are a large number of manufacturers and other service providers who are making a gigantic efforts to enter the Indian market.

Multinationals are conscious of the market potential of Sri Lanka, India and Pakistan, leave alone the South Asian region by itself.In addition to the political will, a further decisive factor that will charter the course will be capital inflows. A common currency would also derive the benefits such as stability and investments into the region.

It would also remove the volatility of the individual currencies of member states.

Presently, all SAARC nations have staggering budget deficits which have to be curbed. There are also inflationary pressures.

November 12, 1997. 7.15 pm. The Ballroom, Lanka Oberoi. Luminaries of South Asia's financial services industry, bedecked in their three piece lounge attire, are agog, awaiting the ceremonial inauguration of what was to be the first ever South Asian Forex (Foreign Exchange) Dealers' Congress. The theme of the parley is: " Beyond 2000. "

Among the dignitaries in this august assembly are: Dr. Chakravathi Rangarajan, Governor of the Reserve Bank of India ( who was resigning from a month of that date to assume duties as Governor- Andra Pradesh) and John Williamson, World Bank's Chief Economist for the South Asian Region.The others include resource personnel from the International Monetary Fund and their ilk.....

The President of the Sri Lanka Forex Association Hiran Cabraal, in his welcome address, stresses that most developed countries in the world have found the need for a regional presence and that the presence of a multitude of delegates underline the solidarity of the region.

Chief Guest Minister Prof. G.L. Peiris, ( who at that time was Minister of Justice, Constitutional Affairs, Ethnic Affairs and National Integration and Deputy Minister of Finance), delivering the keynote address says Sri Lanka emerged as the first nation in the South Asian region to become a signatory to Article 8 of the International Monetary Fund in March 1994.

This, he spells out, was after the United States in 1946, Canada in 1952, Singapore and Malaysia (the first two Asian nations) and Tunisia (all of which were in 1968) and Thailand in 1990. He observes that the alacrity in which countries move towards liberalisation of foreign exchange systems is dependant on global circumstances.

He also connotes that some countries do it by gradual degrees while others take bolder strides and endeavour to implement comprehensive packages. He asserts that Sri Lanka belongs to the latter category.

" After 1977, Sri Lanka took significant strides, within a relatively short period of time, to enthral with our own monetary systems, where policies were cogent", he articulates.

He also says that it is necessary to remember that foreign exchange policies, whose benefits could be derived only if they can be complemented by other policies in respect of other branches of the economy. He opines that if they operate in isolation, piecemeal or ad- hoc, then the fullest benefits will elude us.

"That is why, we in Sri Lanka, are particularly incumbent on the liberalisation of all the segments of the economy, functioning in unison and in combination, to achieve the full thrust of these policies dedicated to greater liberalisation. This is a cluster of policies all of which operate in perfect harmony. " he reflects.

Prof. Peiris, also affirms: " It is the firm resolve of the Sri Lankan Government to intensify the thrust towards liberalisation and that it is fully committed towards to the SAPTA and SAFTA on the basis of reciprocity. " We are certainly committed to move in that direction but on the condition that, naturally and inevitably, the other countries of the SAARC region also diminish their non-tariff barriers", he says.

He also hails the creative genius of Sri Lankans and goes on to assert that the diversity of the Sri Lankan economy being the sole reason for the island nation adept in mitigating the rigours of the South East Asian financial crisis.

The Minister also spells out that even the sails of the yatchs in the Sydney Harbour have their origins in Sri Lanka.

The Chairman of the Organising Committee of the South Asian Forex Dealers' Congress Mangala Boyagoda, proposing the vote of thanks, says ( inter- alia): The foreign exchange market is neither national nor regional, but, it is global." He has the entire audience in raptures when he says...and who knows ? We, within the SAARC region, could end up in a common South Asian currency?

Mangala Boyagoda pioneered seven new instruments in the Sri Lankan financial services market. These includes a debt instrument which is a Commercial Paper, and six hedging instruments ranging from the First Interest Rate Forward Rate Agreement, The First Interest Rate SWAP Agreement, the first Commercial Paper linked to the All Share Price Index (ASPI), Internet Rate Forward Agreement Interest Rate Cap Agreement and the Interest Rate Collar Agreement.

The background to a common currency

The November 1997 conference was a pioneering endeavour in the long-term effort towards a single currency. Sri Lanka was, and is, is a lone player in the market.

The further cause for the promotion of a common South Asian currency has been that all South nations use Rupees.It is Sri Lankan Rupees, Indian Rupees, Pakistan Rupees, Nepal Rupees, Maldivian Rupiah, expect in the case of Bangladesh, where it is the Taka.

The foreign exchange market is not a national or a regional perspective but it is a global matter. He has taken the lead to bring out concept of the SAARC dealers' conference. The concept has been pioneered by Boyagoda himself.

The South Asian Forex Dealers' Congress has been ideally a platform to discuss the issues of the region. It is with these sentiments in mind that Boyagoda echoed for a common South Asian currency. At the end of the day, as participants of the congress, the delegates have to bring about a concept to the country. Sri Lanka being a small country has taken the lead in this all important concept.

There has been excellent headway made since the Colombo Congress three years ago. This was followed by the Indian convention of the SAFDC in 1998, in Nepal in 1999 and 2000 was to be in Pakistan.

Why a common South Asian currency?

The advent of a common South currency would need economic stability and the political will. If one takes into consideration, the European scenario, eleven of the fourteen countries came into agreement, amalgamating the concept of a common currency. These countries took a political decision to stick together.

If the seven South Asian nations decide to get-together and merge their thinking, there is enormous scope, taking into consideration the power base of a 1.2 billion population. There are a large number of manufacturers and other service providers who are making a gigantic efforts to enter the Indian market.

Multinationals are conscious of the market potential of Sri Lanka, India and Pakistan, leave alone the South Asian region by itself.

Therefore, the ideal strategy would be to get to a common platform to talk about the single currency. For this, the paramount prerequisite would be economic stability, which would revolve round the budget deficit and the inflation.

However, this is a long-term plan and has to be based on the mandates of political stability, economic stability fortified by the political will. Further advantages that will accrue will be the free movement of labour and advanced technology that will move across the region. It would also facilitate the promotion of cross border trade, with major players India and Pakistan. Sri Lanka has nothing to lose.

In addition to the political will, a further decisive factor that will charter the course will be the capital inflows. A common currency would also derive the benefits such as stability and also investments into the region. It would also remove the volatility of the currencies of the member states.

Presently, all SAARC nations have staggering budget deficits which have to be curbed. There are also inflationary pressures.

In this context of a South Asian perspective, each nation seems to be pursuing its own agenda, which should come after selfish national interests. Its not impossible.

There are the positive and negative factors which need to be addressed.

A further bugbear to such a policy is that there are conflicts and one has to compromise in this direction. India and Pakistan should shed their differences.

The promotion of the common South Asian currency would be an ideal international power base in this region considering the market.

The European experience

Discussions among the eleven of the fourteen SAARC nations realised that the benefits of such a venture were enormous. The first step was to remove the trade barriers which were an essential prerequisite. Later, there were other criteria such as borrowings and budget deficits which had to be given consideration. The European Monetary Union was also consulted on this.

The scenario in Europe was that they got together to form a common agreement and at what level they were to operate, the levels that they were to maintain the budget deficits, the inflation which were deemed to be the integral factors of that time. This was the dream and the vision that Sri Lanka and the South Asian nations could have, but, how it could be achieved and also in terms of time is also important for us.

Disadvantages and drawbacks

If there is an inhibitory factor that is against the introduction of a common currency, then it is the absence of the current peace between India and Pakistan and to some extent the war against the separatists terrorists in Sri Lanka.

Political uncertainty could be a deciding factor. However, the SAARC rupee would never be a reserve currency. Neither will the Euro be.

Sri Lanka along with the SAARC region should be able to benefit tremendously from the implementation of a common currency. We, in the SAARC region, cannot live in isolation where global barriers are coming down. Regional blocks is the integral feature just as much as the United States merged into the North American Free Trade Area (NAFTA).

The European Union has also the key nations of the European countries. The SAARC region, with a 1.2 billion population could be a force to reckon with. Global trends demand it.

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