Economy Forward

  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...

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...