Economy Forward

  Article's Significance The US dollar is the major currency that drives the global monetary and economic system. Therefore, the governance of the US central bank, the Fed, being the guardian of the dollar through its monetary policy is of prime importance to the global economy because any change in the flow of the dollar supply and prices caused by the Fed has the potential of shocking all corners of the global economy.  Therefore, it is the standard practice of financial dealers and investors around the globe to speculate on Fed's monetary policy and carry on deals on the dollar. As Kevin Warsh is expected to assume duties as the new Fed Chair for a new term of four years beginning 15th this week, such speculations have become a global event. Therefore, this article will help formation of strategies to deal with the dollar and Fed policies under the Fed Chair Kevin Warsh. Article's background and purpose The non-stop headache suffered by central banks world over is how th...

  The monetary policy rhetoric of central banks around the world is that they balance interest rates, exchange rates and liquidity to ensure the price stability within a target of inflation. Its underlying story is that the price stability provides the certainty and impetus beneficial to growth, employment and living standards. However, the general experience is that none of such balances is enjoyed by the general public whereas economic crises hit from time to time due to grave misbalances. Therefore, this short article is to show how misbalances prevail  among interest rate, exchange rate, liquidity and inflation,  taking Sri Lankan economy as the example. However, the article does not highlight any specific reasons and events underlying such misbalances. The target audience of the article is the readers who are familiar with the central bank monetary operations and policy communications. Key indicators of monetary misbalancing Inconsistencies of policy outcomes and pol...

  Article's background and purpose Economies of many developing countries have evolved on the US Dollar as the reserve currency under the Bretton Woods system and IMF/World Bank surveillance. As a result, sovereign currencies have been managed largely tied to the dollar where respective economies have become highly dollarized through imports and foreign borrowing by the governments.  In this background, country leaders have got an easy habit of building a dollar reserve funded by foreign borrowing to show the country's economic strength and attract foreign borrowing inclusive of hot capital. As a result, country economies have become increasingly vulnerable to dollar flows where currency shocks and crises have become a way of living in these countries. A recent article published in the NationNews website, Barbados, on 25 February, authored by  Marla Dukharan, has produced a simple diagnosis on the macroeconomic vulnerability confronted by Caribbean countries due to exces...

  Article's purpose and background The purpose of this article is to summarize the modern monetary theory (MMT) in relation to how modern monetary systems operate on sovereign/state currencies. However, the  MMT is not a monetary theory built upon unrealistic assumptions like in the old or mainstream monetary theory. Instead, the MMT provides a lens to understand how monetary operations of a sovereign currency monetary systems take place and their macro impact on the economy. However, the mainstream monetary theory which is presented in text books and used for macroeconomic management is built on totally different assumptions. Therefore, the MMT and  the mainstream   monetary theory are conflicting each other on the source of modern money/currency, its macroeconomic impact and macroeconomic recommendations.  Highlights of the mainstream monetary theory Its major assumptions and policy recommendations are highlighted below. Sovereign currency of a country is...