Sri Lanka’s reserve-management challenge is becoming increasingly complicated as global financial markets enter an era of geopolitical fragmentation, volatile asset prices and uncertain capital flows. The message from the Reserve Management Conference 2026 is that accumulating foreign exchange alone will not guarantee protection against another external shock.
While Central Bank Governor Dr. Nandalal Weerasinghe stressed the need for organically generated reserves, Asian Infrastructure Investment Bank Treasurer Domenico Nardelli highlighted the equally difficult question of where and how those reserves should be held.
Nardelli, delivering the keynote address in Colombo, warned that even assets traditionally regarded as safe can experience sharp price movements. His comments are particularly relevant for countries such as Sri Lanka, where every dollar of liquidity has to serve multiple purposes protecting external payments, supporting confidence and providing emergency financing capacity.
The dollar remains dominant despite persistent predictions of its imminent decline. Nardelli noted that it still represents roughly 57% of allocated global reserves. Yet the changing international environment means reserve managers cannot afford to ignore diversification.
Gold provides another illustration of the dilemma. Although gold prices have reached record levels, it generates no yield and remains vulnerable to significant price swings. Moving excessively into alternative assets could therefore create a different form of reserve vulnerability.
Nardelli’s central argument was that liquidity itself carries a cost. Maintaining highly liquid assets may reduce investment returns, but that sacrifice should be viewed as an insurance premium rather than simply a lost opportunity.
For Sri Lanka, this is an important distinction.
The economic catastrophe of 2022 demonstrated the enormous value of liquidity when markets turn against a country. Nardelli referred to historical merchant-bank failures and the 2023 collapse of Silicon Valley Bank to illustrate how quickly confidence and liquidity can disappear. Adequate liquid buffers provide authorities with valuable time to respond before a temporary shock becomes a systemic crisis.
The Central Bank therefore faces a delicate balancing act. It must generate reserves without destabilising the domestic economy, preserve sufficient liquidity without sacrificing excessive returns, and diversify assets without compromising their availability during emergencies.
The experience of bilateral assistance from the Reserve Bank of India during Sri Lanka’s 2022 crisis also underlines another dimension of reserve management: regional financial relationships can become an important component of economic resilience.
At the same time, Nardelli argued for connecting global liquidity more directly with productive investment. Multilateral development-bank capital should help finance infrastructure and climate adaptation rather than simply add to debt-driven consumption.
That presents Sri Lanka with a potentially powerful opportunity. Reserve strength, infrastructure investment and climate resilience could be integrated into a broader strategy aimed at reducing dependence on volatile commercial capital.
But the underlying message is uncompromising: Sri Lanka cannot afford to treat reserves merely as numbers on a balance sheet. They must provide real liquidity, genuine confidence and sufficient time to withstand the next crisis whatever form it takes.