DOI: 10.11648/j.ijefm.20261404.16 ISSN: 2326-9561

Forecasting Currency in Circulation in Sri Lanka and Recent Trends

Rohini Liyanage
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Currency in Circulation (CIC) in Sri Lanka moves with its upward growing path dominating annual seasonal patterns with short run dynamics. As per Central Bank of Sri Lanka Act, currency issuing and management is a major function to ensure the availability of legal tender for currency in the country. This paper aims to estimate CIC forecasting model using daily basis, secondary sourced data from 2013 to 2026, filling the existing gaps in CIC forecasting using daily basis data, suggested in literature, elaborating the recent trends in banknote industry which may be useful for improved currency management and related decision making in delivering the currency management process. The estimated Automatic SARIMA (4,0,4) (1,0,2) 365 determined with an additional two-year seasonal MA term forecasting model indicates significant relationships among DLCIC and all coefficients capturing short term daily dynamics, annual seasonality and biannual seasonality. According to the forecasting model, strong annual seasonality in CIC growth is evidenced with short run shock persistence and adjustments. Liquidity demands spikes are largely seasonal driven than structural trends shift. Coefficient diagnostic, residual diagnostics and stability test statistics indicate the model is stable and can be used for short to medium term CIC forecasting and in shaping policy decisions including liquidity management, market operations, currency vault management and risk management. The paper includes importance of redesigning, determining denomination structure and requirement of adhering upgraded substrates in banknotes printing to ensure secure, safer, greener banknotes towards sustainability and to ensure public trust on currency.

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