01 The Hour
Monday
1 August 2022. Sri Lanka. Reconstructed to the day.
From that morning the national fuel pass applied island wide. The last digit number plate system, the tokens and the other arrangements that had been in place were no longer valid.
A vehicle received a code once its chassis number and other details had been verified, one vehicle to one national identity card, and with it a guaranteed weekly quota. Two days of the week for fuelling, set by the last digit of the number plate. Those who could not register on the chassis number could register on the revenue licence.
Three wheelers were to register at their police stations and nominate the filling station they would use.
02 The Sequence
2021 Importers reported that banks were refusing to open letters of credit even for essential commodities, including pharmaceutical products, and were doing so even where the central bank had endorsed the request, because of the shortage of dollars in the market. Applicants were being told to deposit half the value of the letter in foreign currency with the bank before it would be opened.
Nov 2021 to Apr 2022 The letters of credit later at issue were those covering fuel imports made in November, December, January, February, March and April. Some suppliers had been giving the country 180 days of credit through such letters.
6 to 20 May 2022 The Ministry of Finance issued Import Control Regulations on Payment Terms No. 7 of 2022, dated 6 May and effective from 20 May, restricting the use of open account payment terms and consignment account terms, subject to conditions, when importing goods. The central bank published an assurance of its commitment to the availability of foreign exchange through the banking system for the importation of essential food items.
June 2022 The minister responsible for power and energy said that foreign banks were refusing to confirm letters of credit issued by the state banks, and that oil suppliers were also rejecting them. A supplier holding an order for petrol rejected a letter issued by one state bank; a second state bank then agreed to issue one; attempts to have it confirmed by a foreign bank and by Indian banks were declined; a financial institution affiliated to the supplier also refused a few days later. The ship was diverted to an Indian port. Traditional suppliers could no longer carry the risk because of unsettled arrears.
30 to 31 Jul 2022 The ministry announced that the code system would be fully implemented from 1 August and that the existing last digit system would be cancelled. Registration on the revenue licence opened on the Sunday for those unable to register on the chassis number.
1 Aug 2022 The quotas as reported that day: four litres a week for a two wheeler, five for a three wheeler, twenty for cars and vans, and forty to fifty for buses and lorries. Public transport was to have priority, with bus quotas allocated at the transport board depots according to route permit and the kilometres in service.
1 Aug 2022 The same statement placed school service vehicles, office transport, industry, tourism and ambulances on the depot route, gave ambulances priority at all filling stations and the amount requested, and set a separate police allocation from selected stations in each division. The currency had depreciated by about 80 per cent since March.
03 The Hidden Dependency
The queue at the pump is the near end of a chain. The far end is a desk where one bank is asked to put its name to another bank's promise.
A state bank issued the letter of credit. The supplier would not take it. A second state bank issued one instead. A foreign bank was asked to confirm it and declined, then Indian banks, then a lender affiliated to the supplier itself. Nothing about the letter changed through any of this.
The instrument still said what it said. What was missing was a second name on it, and the ship went to India.
The instrument still said what it said. What was missing was a second name on it.
04 What Still Worked
The Depot Route
Buses were fuelled at the transport board depots rather than at filling stations, on a quota set by route permit and kilometres in service. The same depots supplied school service vehicles, office transport, industry, tourism and ambulances, where the authorities had verified them.
The Ambulance
Ambulances were to be given priority at all filling stations, and the amount requested rather than a quota. It is the one category in the list with no number against it.
The Food Channel
Alongside the payment terms regulation of May, the central bank published an assurance of its commitment to ensuring the availability of foreign exchange through the banking system for the importation of essential food items.
05 The Plumbing
The Plumbing 6 May 2022
Import Control Regulations on Payment Terms No. 7 of 2022, dated 6 May and effective from 20 May, restricted the use of open account payment terms and consignment account terms, subject to conditions, when importing goods into the country.
Those are the terms on which goods travel without a bank standing behind the payment. Closing them narrows importing onto documentary terms, which is to say onto letters of credit, in the same season in which the letters of credit were the thing failing.
06 The Pattern Library
1 When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019, Worldpay 2026, TSB 2018, Afghanistan 2021, Nigeria 2023.
2 A currency replacement can require physical modification of each cash dispensing machine before the new notes can be issued, so the machine estate returns to service site by site rather than at once.
Observed: India 2016.
3 Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4 Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008, Germany 1931.
5 When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6 A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7 Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8 A cash withdrawal ceiling is paid only in the denominations the machine is permitted to hold, so a ceiling and a denomination rule set together decide how many notes a withdrawal is, and a ceiling has to be raised alongside the denominations that pay it when the existing notes no longer carry it.
Observed: Zimbabwe 2008, Nigeria 2023.
9 A payment outage can hit card authorisation and merchant funding as separate faults, so acceptance at the terminal is restored while the money owed to the merchant arrives a day late under its own incident notice.
Observed: Worldpay 2026.
10 A retailer that loses electricity can go on trading by taking cash and rationing goods by hand, so the counter outlasts the checkout system that normally prices and settles the basket.
Observed: Texas 2021.
11 A systems migration can leave account records readable but wrong, including presenting one customer's account to another, so a working login is no guarantee that the balance on the screen belongs to the person reading it.
Observed: TSB 2018.
12 The size of a card processing failure can be counted twice, once on first attempts and once after the same card was presented again, and the second count can be about half the first, so part of the recovery runs through the cardholder at the till.
Observed: Visa Europe 2018.
13 A restriction on access to money can be written by purpose as well as by amount, so a balance that cannot be drawn in general becomes payable when it is used for wages, taxes or relief, and the test applied is what the money is for.
Observed: Germany 1931, Brazil 1990.
14 A deposit freeze can be paired with a transferable certificate issued against the frozen balance, so the deposit becomes a claim that can be sold before it is released, at a price the market sets rather than its face value.
Observed: Ecuador 1999, Argentina 2002.
15 A per head issue of a new currency can be distributed through the administration that issues food rations rather than through the banks, so the ration card is the proof of entitlement and the banks are used to collect the old money rather than to pay out the new.
Observed: Germany 1948.
16 When the persons under sanction become the governing institutions of a country, the prohibition reaches ordinary payments that merely touch the state, and access is restored by successive general licences written by activity, so what decides whether a payment can be made is which licence it falls under.
Observed: Afghanistan 2021.
17 One foreign currency held in one banking system can carry two prices at once, according to whether a balance was credited before or after the date the restrictions began, so the older money converts only at a rate the authority names.
Observed: Lebanon 2019.
18 A payment abroad can be made conditional on prior approval by a committee working to a ceiling set for the whole country each day, so what a firm can pay turns on the capacity of the approval process rather than on the balance in its account.
Observed: Greece 2015.
19 Scarce foreign exchange can be rationed through the commercial banks under published guidelines, with the central bank selling only the net requirement at a daily auction and checking compliance through reporting after the fact rather than approving each payment in advance.
Observed: Iceland 2008.
20 A payment instrument issued by a bank in a country under strain can be valid and unusable at the same time, because the counterparty abroad requires a second bank to confirm it, so the trade stops at the confirmation rather than at the instrument.
Observed: Sri Lanka 2022.
Changed today: No existing entry gained a case. Entry 18 was considered and withheld because payments here were not approved one at a time by a committee against a national ceiling, and entry 19 because the sources used show no auction and no published guideline enforced by reporting. Entry 20 added, on an instrument that stayed valid while no second bank would put its name to it.