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Monetary misbalances. Another rate hiking cycle is ahead for a new round of misbalances? Saving the world economy from Iranian war or sinking it?

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  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...
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Never-resolvable macroeconomic vulnerability. Is IMF the solution? You judge.

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  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...
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Modern monetary theory (MMT). A factful economic guide to develop the economy and living standards through sovereign currency.

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  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...
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Why was a central bank established in Sri Lanka in 1950? Could the government achieve its national objectives?

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Article's purpose and background The present central bank which was established on 14 September 2023 as a part of economic management package set out in the 2023 IMF Accord has recently released a press notice to inform the public of the closure of its Public Debt Department (PDD) effective from January 01, 2026  (Read the notice here) . The PDD is one of few Departments established under the Monetary Law Act (MLA) at the inception of the central bank on 28 August 1950. This news motivated me to write this short article in the national interest on the following background. The PDD served as the bread and butter for the implementation of the fiscal policy of the government and monetary policy of the central bank as set out in the MLA in the national interest during the past 76 years, given the fact that the Sri Lankan monetary system that was established by the MLA in 1950 was built on sovereign currency (Sri Lankan Rupee) supplied by the government through its fiscal spending and d...
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