Speaking at the opening of the inaugural Reserve Management Conference 2026 in Colombo, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe warned that geopolitical fragmentation, sanctions, and trade tensions have fundamentally changed the environment for central banks, requiring reserve managers to prioritize liquidity and buffer adequacy over investment returns.

Reflecting on Sri Lanka’s economic crisis of 2022, Dr. Weerasinghe highlighted the severe real-world consequences of inadequate external buffers. He noted that critically low reserves constrained essential imports, complicated debt servicing, intensified exchange-rate volatility, and restricted policy responses. Although post-crisis macroeconomic reforms have strengthened Sri Lanka’s external sector, he emphasized that building foreign exchange reserves is a complex, non-linear process that demands strict institutional discipline during favorable economic periods.

Addressing the challenges of global financial fragmentation, the Governor outlined key principles for managing national reserves. While acknowledging that the US dollar retains an unmatched position in global trade and finance due to its deep market liquidity, he cautioned central banks against uncalculated diversification. Diversification, he argued, must address clearly defined risks rather than becoming an objective in itself that compromises market access and liquidity during stress. He also noted renewed central bank interest in gold as a store of value lacking credit risk, while reiterating that safety and liquidity must remain the primary anchors across all asset classes.

Dr. Weerasinghe called for a fundamental shift in how central banks evaluate reserve adequacy, rejecting single conventional indicators such as months of import coverage. Instead, he advocated for a broader risk-management framework capable of handling compound shocks—including volatile energy prices, geopolitical trade disruptions, changing interest-rate cycles, and climate disasters like Cyclone Ditwah. On technological advancement, he stressed that artificial intelligence and automated models should serve to augment—rather than replace—human judgment, leaving accountability for national resources firmly with decision-makers.

Concluding his address to international delegates and central bank representatives from across Asia, Dr. Weerasinghe emphasized the critical role of regional cooperation and candid knowledge-sharing. Citing bilateral support received from partners such as the Reserve Bank of India during Sri Lanka's economic stress, he noted that international cooperation remains a key pillar of financial resilience in an increasingly unpredictable world.

Below is the full official text of the keynote address delivered by Dr. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka, at the opening of the Reserve Management Conference in Colombo on September 10, 2026.

Good morning, everyone. Deputy Governors, Assistant Governors, distinguished keynote speakers, esteemed panelists, delegates from fellow central banks and international institutions, invited guests, ladies and gentlemen, let me first echo the sentiments expressed by our Director and warmly welcome all our distinguished international participants who have travelled from across Asia and beyond to join us in Colombo today.

It is a great pleasure for the Central Bank of Sri Lanka to host the inaugural Reserve Management Conference 2026.

The theme of this year's conference, “Building Buffers: Strategies for Reserve Management Amidst Heightened Uncertainties,” could hardly be more relevant. It is a very timely topic, given the environment in which reserve managers have to operate today.

For central banks, foreign reserves are far more than financial assets on a balance sheet. They are a country's first line of defence against external shocks. Reserve management is not simply about managing someone else's assets; we are responsible for managing the nation's savings. These are not shareholders' savings, nor are they merely the government's resources; they are the nation's reserves. That is why we have a very important responsibility in managing the nation's foreign exchange reserves.

They provide confidence. They provide policy space. They enable countries to meet essential external obligations. Perhaps most importantly, they provide something that becomes invaluable during a crisis - time.

Time for policymakers to respond. Time for markets to stabilise. Time for an economy to adjust without being forced into disorderly and unnecessarily painful corrections. If we have reserves, they give us that space and time.

That is why the adequacy, accessibility and resilience of foreign reserves remain fundamental to macroeconomic and financial stability. This is not only the narrow responsibility of reserve management; it is a much broader objective for which central banks as a whole are responsible.

A Changing Environment for Reserve Managers

Traditionally, reserve management has been guided by three familiar objectives: safety, liquidity and return. Those objectives remain fundamental. However, the environment in which we pursue them has changed significantly.

Reserve managers today operate in a world characterised by geopolitical fragmentation, strategic competition, trade tensions, sanctions, financial fragmentation, volatile commodity prices, changing interest-rate cycles - both expected and unexpected - and rapid technological transformation.

The international financial system is becoming more fragmented. Trade and investment patterns are changing. Supply chains are being reconfigured. Capital flows can be volatile and can reverse rapidly. And geopolitical developments can now be transmitted into financial markets almost instantaneously.

A conflict in one part of the world can affect energy prices globally, as we have experienced recently. A disruption to a major shipping route can affect inflation thousands of kilometres away. That reflects the degree of global interconnectedness we experience today.

A change in monetary policy in a major economy can alter capital flows to emerging markets, as we have seen over the past decade and a geopolitical announcement can trigger significant movements in exchange rates, bond yields and risk premia within minutes.

For reserve managers, the implication is clear: geopolitical risk can no longer be treated as something external to the investment process. It has become an integral part of reserve management. These are among the complications that reserve managers now have to manage.

Lessons from Sri Lanka

Let me briefly share a lesson that we in Sri Lanka have learned particularly well.

Our economic crisis of 2022 demonstrated, in the most tangible way, what happens when external buffers become inadequate.

When reserves become critically low, the consequences extend far beyond the central bank's balance sheet and far beyond the responsibilities of reserve managers. Imports become constrained. Debt servicing becomes difficult. Exchange-rate pressures intensify. Inflationary pressures can increase. Confidence in the economy and the country can deteriorate. We experienced these consequences in a very difficult way during the crisis and most importantly, the policy space available to respond to further shocks becomes severely constrained.

The lesson is therefore clear: adequate reserves are not a luxury. They are an essential component of macroeconomic stability.

Since the crisis, Sri Lanka has undertaken a comprehensive process of macroeconomic stabilisation and structural reforms. The economy has demonstrated considerable resilience, and the external sector has strengthened substantially compared with the difficult period of 2022–2023.

These developments illustrate an important reality: building reserves is not a linear process. We can accumulate reserves during favourable periods, but external shocks can draw them down very quickly. We have seen this volatility in reserve accumulation not only in Sri Lanka but across many markets, including countries with relatively high reserve levels.

Therefore, the relevant question is not simply, How much reserves do we have today? We must also ask: How resilient are those reserves? How accessible are they? How quickly can they be mobilised? Ultimately: Will they be sufficient for the next shock - a shock whose timing we cannot know in advance?

Why Is Building Reserves So Difficult?

At first glance, reserve accumulation appears straightforward.

A country earns foreign exchange through exports, tourism, remittances, services and capital inflows. When inflows exceed outflows, reserves can increase. It is naturally easier to build reserves when conditions are favourable and times are good. However, in practice, reserve accumulation is a much more complex policy exercise, because good times do not continue indefinitely. There can be difficult periods as well.

Reserve accumulation must take place while preserving exchange-rate flexibility, maintaining price stability, meeting external obligations, financing essential imports and maintaining market confidence.

In other words, reserve accumulation cannot be separated from the broader macroeconomic policy framework. This is particularly important for emerging and developing economies.

Rebuilding Buffers after a Crisis

For countries that have experienced a major depletion of reserves, as Sri Lanka did, rebuilding buffers requires patience and discipline. Reserve accumulation must be consistent with broader macroeconomic adjustment.

We cannot accumulate reserves at any cost. We have to remain mindful of overall macroeconomic stability. Excessive intervention can distort market signals. Excessive monetary expansion can create inflationary pressures. Excessive reliance on external borrowing can simply create future debt-service obligations.

Sustainable reserve accumulation must therefore ultimately be supported by sustainable external-sector fundamentals. It also requires fiscal and monetary credibility and support from the broader macroeconomic policy framework.

The most sustainable reserve accumulation strategy is therefore not simply to acquire reserves. It is to build an economy that naturally generates and retains foreign exchange while maintaining overall economic stability.

Geopolitical Fragmentation and Reserve Portfolios

The second major challenge is the increasing fragmentation of the global economy.

For decades, reserve management benefited from a relatively integrated global financial system. That assumption can no longer be taken for granted. Strategic competition among major economies is influencing trade, investment and financial relationships. Sanctions have become a more prominent policy instrument. Jurisdictional considerations are increasingly relevant to financial decision-making.

For reserve managers, this raises difficult questions. Should reserves remain concentrated in the deepest and most liquid markets? Should portfolios be diversified across jurisdictions? How should we balance diversification against liquidity? How should sanctions, settlement and counterparty risks be incorporated? How much diversification is beneficial before it begins to reduce liquidity and operational efficiency?

These are important questions that we need to deliberate on during the technical sessions today and tomorrow. They are no longer theoretical questions. They are increasingly becoming practical reserve-management decisions that all of us have to consider.

The Role of the US Dollar

This naturally brings us to the role of the US dollar, which remains the dominant currency in reserve management.

The dollar continues to occupy a dominant position in international trade, finance and global reserves. The depth and liquidity of US dollar financial markets remain unmatched. At the same time, reserve managers are understandably examining the risks associated with excessive concentration in any single currency or jurisdiction. Diversification has a role to play. However, diversification should not become an objective in itself.

The reserve portfolio must ultimately be designed around its purpose. If reserves may be required during a crisis, liquidity must remain paramount. A theoretically diversified portfolio that cannot be liquidated efficiently when markets are under stress may provide little practical protection.

The more appropriate question is therefore: What currency composition best supports the objectives and risk tolerance of our reserves? The answer depends on each country's circumstances.

That decision must take into account trade patterns, external liabilities, intervention requirements, liquidity, market depth, expected returns, correlations and geopolitical risks. These factors naturally differ from one country to another. There is, therefore, no universal optimal currency composition.

Safety, Liquidity and Return

This brings us to one of the most familiar - perhaps most difficult - challenges in reserve management: safety, liquidity and return.

Under normal market conditions, these objectives can often be balanced. During periods of stress, however, the trade-offs become much sharper. Assets that appear attractive under normal conditions may behave very differently during a crisis. This is why reserve management cannot be evaluated simply by looking at investment returns.

A reserve portfolio is not a conventional investment portfolio like a private-sector or commercial bank portfolio. As I mentioned earlier, these are the nation's savings.The fundamental question is not: “How much return did we earn?” It is: “Did we preserve the value and availability of our reserves when they were most needed?” This distinction is critical.

Liquidity has what we might call an option value. Highly liquid assets may appear costly during quiet periods. However, that liquidity can become extremely valuable when markets are under stress. For official reserves - a country's national reserves - that value cannot be ignored, because liquidity contributes to the overall stability and resilience of the country.

Reserve Adequacy: Beyond a Single Number

Emerging economies often face several demands on their foreign exchange resources at the same time. They must build reserves, service external debt, finance essential imports, support economic recovery and maintain confidence in the exchange rate. These are competing challenges for us as central bankers.

This means reserve adequacy cannot be assessed through a single conventional indicator, such as months of imports. Imports remain relevant, but they are only one part of the picture.

We must also consider short-term external liabilities, debt-service requirements, capital-flow volatility, potential contingent liabilities, exchange-rate flexibility, access to contingent financing, and the probability and magnitude of external shocks. We also need to consider whether we have sufficient buffers to mitigate the shocks that may arise.

Therefore, reserve adequacy is not simply a number. It is a risk-management framework. This is an important shift in perspective. The question is not merely how much we hold, but whether our buffers are appropriate for the risks we face and may face in the future.

Commodity, Energy and Climate Shocks

Recent developments also remind us of the importance of commodity and energy shocks.

For an energy-importing country such as Sri Lanka, a sharp increase in global oil prices can quickly increase the import bill. At the same time, geopolitical tensions can affect tourism, remittances and other sources of foreign exchange earnings. This can create a particularly challenging combination: foreign exchange outflows increase while inflows weaken. That is precisely the type of situation for which reserves exist. However, it also reinforces a fundamental lesson: we cannot wait for a crisis to begin before we start building buffers.

Climate-related shocks deserve similar attention. For countries such as Sri Lanka, extreme weather events can affect agricultural production, infrastructure, tourism, imports and fiscal conditions. A natural disaster can therefore become an external-sector shock, such the cyclone Ditwah we experienced last year.Reserve adequacy frameworks should increasingly incorporate such risks - not only in isolation, but in combination with other shocks.

The important question is: what happens if such shocks are realized and how are we going to respond to those? These combined scenarios may be far more relevant than considering individual risks separately. We therefore need to think carefully about how we would respond if such combinations of shocks were realised.

Gold, Alternative Assets and Innovation

Another issue receiving increasing attention is the role of gold and alternative reserve assets.

Gold has historically served as a store of value and does not carry the credit risk of a sovereign issuer. The recent global environment has renewed interest in gold among central banks. This is also one of the reasons we have seen gold prices rise over the last couple of years.

Again, the appropriate question is not simply: “Should we buy gold?” It is: “What role should gold play within our reserve portfolio?” That is the question we need to deliberate on.

Gold does not provide the same liquidity characteristics as cash or highly liquid government securities. Its appropriate allocation must therefore reflect each central bank's objectives, liquidity requirements, risk tolerance and overall portfolio structure, which may vary across markets. The same principle applies to other emerging instruments, including digital assets and tokenised financial instruments.

Innovation is important. However, innovation should never come at the expense of the fundamental objectives of official reserves. Safety and liquidity must remain the anchor.

Technology and Artificial Intelligence

Technology and artificial intelligence will increasingly influence reserve management.

Reserve management has always been data-intensive. However, the volume, speed and complexity of information now available to reserve managers are unprecedented. Real-time market information, alternative data, high-frequency indicators, automated analytics, advanced risk models, machine learning and artificial intelligence can all strengthen decision-making. AI can potentially help reserve managers identify patterns, monitor markets, conduct scenario analysis, improve forecasting and enhance decision support. However, we should also remain cautious.

Artificial intelligence does not eliminate uncertainty. Models can fail. Data can be biased. When structural changes occur, algorithms trained on historical experience may fail to capture emerging risks. Therefore, I would emphasise one principle: AI should augment the judgement of reserve managers - not replace it.

The responsibility for official reserves must remain with people. Technology should make decision-makers better informed, faster, more resilient and more efficient - not less accountable.

Principles for Modern Reserve Management

Against this backdrop, I would suggest some principles that should guide modern reserve management while respecting the fundamental objectives of safety, liquidity and return.

First - adequacy before optimisation. Before asking how to maximise returns, we must ensure that reserves are sufficient for their intended purposes. A reserve portfolio that is too small cannot be made safe simply by earning a higher return.

Second - diversification should be purposeful. Diversification can reduce concentration risk. However,  diversification for its own sake can introduce complexity and reduce liquidity. Diversification should therefore be based on clearly identified risks and objectives.

Third - geopolitical risk must be integrated into investment decisions. Reserve managers can no longer assess assets solely through traditional financial metrics. Jurisdictional risk, sanctions risk, settlement risk, counterparty risk, market-access risk and geopolitical concentration all need to be considered.

Fourth - reserve management must be dynamic. The optimal portfolio today may not be the optimal portfolio tomorrow. We need to learn quickly and make effective use of technology. Interest-rate cycles change. Currencies can be volatile. Trade patterns change. Geopolitical relationships change. Technology changes. Our reserve-management frameworks must therefore evolve as well.

Build Buffers Before They Are Needed

Perhaps the most important lesson from recent years is a simple one: buffers must be built before they are needed.

When a country is already facing an external crisis, it is too late to begin building reserves. Reserve accumulation is easiest when confidence is strong, capital is flowing, exports are growing and foreign exchange liquidity is abundant. However, these are precisely the periods when there is a temptation to assume that favourable conditions will continue indefinitely. That is why institutional discipline matters.

We should build buffers during good times because we know that good times will not last forever. In simple terms, we must build for a rainy day.

The Importance of Regional Cooperation

This is also why today's conference is so important. Sri Lanka is not alone in facing these challenges.

Central banks across Asia are confronting many of the same questions. How much reserves are enough? How should reserves be allocated across different asset classes? How should currencies be selected and what should their composition be? What role should gold play? How should we respond to geopolitical fragmentation? How can technology improve reserve management? How should we prepare for risks that cannot be captured adequately by historical experience? History does not necessarily repeat itself in the same way.

There is enormous value in sharing our experiences. That is why we have brought all of you together. We can all learn from one another by sharing our experiences. Because while our economies differ, the challenges facing reserve managers increasingly transcend national boundaries.

I therefore hope that this conference will go beyond formal presentations. I hope it becomes a platform for open discussion, practical exchange, candid reflection and shared experience.

We should be willing to discuss not only what worked, but also what did not. Not only successful strategies, but also lessons from difficult periods - because those can provide some of the most important learning. Not only models, but also judgement. Not only returns, but also liquidity and resilience. Not only the risks we understand today, but also those we may not yet fully understand.

For central banks, international cooperation is itself a form of resilience. During periods of stress, relationships matter. For example, during Sri Lanka's period of stress, we received support, particularly from the Reserve Bank of India.

Access to information matters. Communication matters. Mutual understanding matters. The relationships developed through forums such as this can become particularly valuable when the global financial environment becomes more challenging.

That is why I encourage all of you to share your experiences candidly, openly and transparently

Looking Ahead

Ladies and gentlemen, reserve management is entering a new era.

The reserve manager of the future will need to be more than an investment professional. Managing official reserves is not the same as managing a commercial bank portfolio. Reserve managers will need to understand macroeconomics, geopolitics, financial markets, technology, risk management and, increasingly, climate-related risks. Above all, they must understand the purpose of reserves. Official reserves have a special purpose because they are national resources.

We do not manage reserves simply to earn a return. We manage reserves to protect economic stability and preserve confidence. That distinction should remain at the centre of every reserve-management decision.

Conclusion

Let me conclude with three messages.

First, geopolitical uncertainty has fundamentally changed the environment in which reserve managers operate. We must therefore broaden our definition of risk.

Second, building reserves is a long-term process. It requires sound macroeconomic fundamentals, policy credibility and institutional discipline, including across relevant stakeholders. There is no shortcut to sustainable reserve accumulation.

Third, resilience cannot be created by one asset, one currency, one model or one strategy. It is created through adequate buffers, prudent diversification, strong liquidity, sound institutions, flexible policies and international cooperation.

The experience of recent years has reminded us of one fundamental truth: we do not build reserves because we expect a crisis. We build reserves because we cannot know when the next crisis will come. In an increasingly uncertain world, the value of that preparedness has never been greater.

I am confident that the discussions over the next two days here in Colombo will contribute meaningfully to our collective understanding of how central banks can strengthen their reserve-management frameworks and build greater resilience in the face of uncertainty.

Let me thank all our distinguished speakers, panellists, international participants and colleagues for joining us and for sharing your expertise and experience. I hope this conference will not only provide valuable insights but also strengthen the relationships and cooperation among reserve managers across the region and beyond.

Once again, I warmly welcome you all to Colombo and to the Reserve Management Conference 2026. I also hope you will enjoy your time in Sri Lanka. It is a beautiful place to visit.

I wish you all a very productive, engaging and successful conference.

Thank you very much.