Economy Forward

In July this year, the Central Bank of Sri Lanka (CB) released a publication "Monetary Policy Implementation in Sri Lanka."   https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/P.R_20230710_The_Central_Bank_releases_a_Pamphlet_on_Monetary_Policy_Implementation_e.pdf   The CB has a practice of issuing such short publications as Guides to specific functions of the CB to make the general readers  aware   of the nature of such functions. However, this publication attempts to present highly conceptual and theoretical materials that are controversial among the economists and policymakers whereas its use to general readers is very limited. Therefore, this article does not comment on diverse texts carried the publications but highlights a few of graphical materials of the publication to establish the technical inappropriateness of the publication. My comments are given on following 7 figures presented in the publication. Comment 1 - monetary policy e...

  The part I of this series of article released on 22 August 2023 ( Central bank policy interest rates don't have a macroeconomic rationale - Sink in the crisis or look for alternative monetary instruments? Part I 🙏 ) in this blog proved that central bank policy interest rates are overnight or very short-term risk free rates on central bank's money printing-based credit operations, credit operations of the rest of the monetary economy are taken place at various degree of risks, interest rates are the prices of risks such as real business and inflation and, therefore, policy interest rates-based monetary policy cannot drive market interest rates and credit flows unless central banks implement risk sharing and mitigation tools in the monetary policy. In that context, this part II of the article shows why the Central Bank of Sri Lanka (CB) which pursues a policy interest rates-based monetary policy model along with its subsidiary policy tools introduced to support the monetary p...

  The purpose of this article is to shed light on the daylight public finance impropriety that took place in Sri Lanka on 12 April 2022 by defaulting of foreign currency payment on foreign debt of the government by unauthorized public officials. The debt both private and public is part and parcel of the country's monetary system which primarily operates on public debt as the core. Modern monetarists prove that the governments with sovereign currency powers do not have to default on their debt unless they purposely do it for unknown or reckless motives. This position has no exception to Sri Lankan too. Governments' sovereign currency and spending powers - Facts Except in countries whose legal tender is the foreign currency, monetary and currency systems in all other countries are based on state or fiat currencies where the whole monetary system including the issuance of currencies is regulated by the governments through their agents being central banks/monetary authorities. Ther...

The purpose of this article is to highlight the urgent need to critically review the macroeconomic rationale of monetary policy model of Sri Lanka which confronts a severe macroeconomic and social crisis driven by foreign currency and debt, despite the sovereign monetary and central banking system. Given the technical nature of the subject, this article contains a series with the part I presented today.  Input for thought from Argentina On August 14, the Central Bank of Argentina raised it policy rate by 21% to 118%. This has been the policy response to the money market volatility created by a sweeping policy statement made by the front running,  far-right libertarian   Presidential candidate  Javier Milei who won the primary election. His statement was that, if he won the election, he would close down the central bank and dollarize the economy with free banking. His reasoning is as follows. There is no demand for the local currency where the demand i...