Modern monetary theory (MMT). A factful economic guide to improve living standards through sovereign currency.

 

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 printed and produced by the central bank externally under its monetary policy. This amount of money is known as the reserve money. It comprises of currency notes and coins prevailing in circulation and deposits of banks held in their accounts at the central bank. This deposit component is known as the liquidity or reserves in the banking system.

• The banking system has the ability to create further money on the use of reserve money. This layer of money creation commences on the receipt of currency or reserve money by way of customer deposits to banks. Then, banks will keep a fraction of the currency deposit as reserves for meeting customer cash needs and lend the balance to borrowers. This business is known as financial intermediation.

• When borrowers spend their bank loans, a part of loan proceeds will reenter the banking system as new deposits whereas the balance is held as currency by the public. The banks will use the new deposits to lend again after keeping a fraction as reserves.  Accordingly, this process of deposits and lending will continue in several rounds until the first deposit is completely absorbed to reserves or currency held by banks and public. Therefore, the total amount of bank deposits at the end will be larger than the initial bank deposit. Such deposits are considered as created money in bank books. This is known as the creation of money by the banking system. Accordingly, the banking system has the ability to create money by several times the receipt of deposits of reserve money or currency. This rate of money creation is known as the money multiplier. 

• Therefore, the total supply of money in the economy is the sum of currency and bank deposits held by the public.  Several estimates of money supply are presented depending on types of deposits covered such as demand deposits, time and savings deposits and foreign currency deposits. Accordingly, the money supply model is the reserve money times the the money multiplier. This means that, if the money multiplier is 8, any unit of reserve money printed by the central bank will be eventually 8 units of money held by the public in the economy. Therefore, the money multiplier is estimated as the ratio of money supply to reserve money. The creation will have an unknown transmission time due to delays in process between deposits and lending in the banking system.

• Therefore, this monetary theory believes that the central bank can control or regulate the money supply in the economy through its monetary policy instruments by affecting both the level of reserve money and the size of money multiplier. As a result, the money supply is a result of the central bank monopoly power.

• Therefore, the government also has to borrow externally from the existing money supply to finance its budget deficits. Therefore, the budget constraint is same for both the private sector and the government. This means that they can spend more than the income only if they can borrow from the existing money supply in the economy through banks or non-bank private sector.

• As the government is the single biggest borrower in the economy, the budget deficit or government borrowing crowds out the private sector investments. This is believed to happen as the interest rates increase and financial savings available to the private sector fall due to the government's heavy borrowing. Therefore, the government is blamed for both the expansion of money supply and resulting inflation. In addition, its budget deficit is also blamed for balance of payment deficits caused by the deficit-induced expansion of money supply.

• Therefore, the standard monetary prescription for the maintenance of the economic stability is the restriction of the budget deficit and debt. This requires the government to curtail spending and debt and raise taxes at certain predetermined ratios known as fiscal rules. This is the neoliberal recommendation used globally as the fiscal discipline to facilitate the competitive markets and private sector. This is the cornerstone of IMF loan programmes to developing countries.

• The central assumption in this monetary theory is that the inflation or the increase in the general price level of the economy is always everywhere a monetary phenomenon (or a result of money supply). It is the phenomenon where the prices of goods and services increase in general when the money supply rises faster than the supply of goods and services. This creates an excess demand for goods and services than their supply and pushes up the prices in general. Such general increase in prices is known as inflation.

• As the government is the single biggest buyer of goods and services in the economy, the budget deficit is considered as the major cause of the excess demand and inflationary pressures in the economy. Therefore, the inflation control in the present monetary model requires the smaller budget deficits to enable the central bank to conduct the monetary policy independently to control the money supply appropriate for inflation targets.

• As such, budget deficit and debt as well as political leaders who use them to promote living standards and public welfare are labeled as public enemies by mainstream monetary economists and business leaders who believe in this monetary theory.

This mainstream monetary theory is the bread and butter of economics courses and text books across the world and the cornerstone of the neoliberal macroeconomic management ideology. Therefore, all mainstream economists and country leaders adhere to it like an economic religion without any queries being raised. In fact, it is used even to overthrow the governments in times of high inflation alleged to excessive money printing used for deficit financing irrespective of the actual causes of inflation.

However, if the MMT is correctly understood, it can be observed that the mainstream monetary theory is a mythical assumptions-based ideology which is not supported by actual operations of modern monetary systems or empirical evidence on high inflation stories. In fact, if this monetary theory is correct and central banks are able to control inflation, countries which have central banks will never confront inflation episodes from time to time. However, this article does not investigate into the ideology of the mainstream monetary theory.

Key ingredient of MMT on a sovereign currency economy

Sovereign currency is the monetary unit prescribed by the law to serve as the standard unit of value and legal tender for all transactions in a country. Accordingly, relevant laws provide for its creation, use and control. In addition, there are criminal laws such as Public Property Act, Anti-money laundering laws and anti-corruption laws to prevent fraudulent use of sovereign currency.

Modern sovereign currencies have been created and operate on the government's budgetary operations. Therefore, actual monetary operations are the budgetary operations, i.e., spending, taxes and debt, where the central bank monetary operations are only a part of the currency system intended to settle the currency transactions arising from budgetary operations.

Accordingly, the currency is first created through double-entry book-keeping in books of the central bank and banks in digital form for the settlement of government spending carried out through payment orders. Then, some of such digital currency is converted into currency notes and coins or cash produced by the central bank when banks withdraw currency from the central bank to meet the demand for cash by the public. Accordingly, the convertibility of the state currency takes place between digital currency and cash (notes and coins). However, the creation or printing of currency means the creation of currency in digital form in the books of the central bank as the fiscal agent of the government.

Therefore, the modern sovereign currencies are the government responsibilities created without any intrinsic value or assets whereas, in the past until 1971, currencies were convertible into gold. Therefore, modern currencies are accepted on the trust in the government who issues them. However, in the European Union, the currency is issued by the European Central Bank unconnected to the member governments of union and, therefore, the European currency is just accepted by the general trust in the legal currency system. Therefore, the MMT does not apply to the European currency as it is not a sovereign currency but a bureaucratic currency issued by the common central bank based on bureaucratic decisions unrelated to member governments.

Overall, the MMT is a lens invented to understand the system or the process behind the creation, operations and macroeconomic impact of modern sovereign currencies. Unlike in the mainstream monetary theory, the MMT does not use assumptions but presents facts. Accordingly, key macro elements of the accounting and operational framework behind the modern sovereign currencies are highlighted below as presented in the MMT.

Creation of the demand for currency

The government creates the demand for its currency by requiring the private sector to pay tax and all statutory fees in the sovereign currency. Therefore, people work for the government to earn the currency as income to pay tax and to use the balance for living. The most part of the work/employment is involved in working for the government by selling goods and services to the government who is the monopoly supplier of the currency. The state employment is one big category. Therefore, it provides the ability to the government to spend through the creation of the currency for the payment for goods and services first and then collect tax from the private sector out of the currency income so received from the government.

Government spending to create the currency

The government spends or pays for goods and services bought from the private sector by issuing pay orders drawn on banks with whom the government maintains accounts. The currency is created to honor and settle these government pay orders by the banking system led by the central bank Therefore, governments with sovereign currency powers can spend without pre-determined limit or constraints of income. As such, government do not stock currency inside their Treasuries before buying goods and services.

Central bank role as the currency settlement agent

The central bank as the government's bank and fiscal agent is one of banks with whom the government deals. All banks and government maintain accounts with the central bank to settle government pay orders and collection of taxes. The central bank operates the settlement system among banks and government so that currency transactions are settled to keep the public trust in the currency. The amount of currency deposits with these accounts are known as reserves and these accounts are known as reserve accounts.

The government's pay orders for spending received by banks and taxes paid by the private sector to banks are settled between these reserve accounts at the central bank. The central bank maintains a digital or electronic settlement system for online settlements.

• For example, pay orders are settled by debiting the government reserve account and crediting the relevant bank reserve accounts. As a result, reserves in the banking system increases. This is known as money or currency printing. Here, the actual money printer is the government whereas the central bank is only the account clerk for the government. That is why the central bank is known as the government's bank and fiscal agent.

• In the event, the government reserve account does not have a sufficient balance to settle its pay orders due to banks, the central bank will lend reserves to the government and relevant bank reserve accounts will be credited by debiting the government reserve account. Therefore, reserves in the banking system increases. Further, pay orders drawn on specific banks will be settled though bank reserves whereas the relevant payment will be recorded as receivable from the government. The receivable means the currency created in the digital form.

• In contrast, tax paid by the private sector to banks is settled by the central bank by debiting those bank reserve accounts and crediting the same amounts to the government reserve account. Therefore, reserves in the banking system declines due to settlement of taxes. 

• In the event, particular banks do not have sufficient reserves to settle taxes, they borrow reserves from the central bank against the collateral of government securities to settle such accounts. This is in fact a purchase of government securities by the central bank in the secondary market. The central bank has such money printing power. Otherwise, the state currency system will fail due to the default of government payments by banks. 

• Therefore, the government reserve account balance is the net flow between its receipts and payments involved in currency printing. It is the opposite of the reserve flow in the banking system which represents the change in the currency printing by the government.

• As a result, both government pay orders and tax collection cause changes in money printing to keep the currency settlement system operating without default. This is a role of the central bank as the currency agent of the government.

Taxation as an instrument for withdrawal of currency by the government

Taxes are the withdrawals of a part of the currency created by the government through its spending in the past. The private sector earns income from currency created by the government spending on purchase of goods and services from the private sector. The private sector then pays back a part of this currency income to the government as tax. Therefore, the government must spend first to create the currency in order to enable the private sector to earn currency first and then to pay tax. Therefore, the currency printing is the tax credit available to the private sector whereas the tax is a debt to tax credit account or the withdrawal of some of the currency created by the government. Therefore, the overall tax rate is the price of the currency creation fixed arbitrarily by the government. 

Therefore, tax collection helps the government in two ways.

• First, a reduction of spending of the currency income by the private sector to control inflation or price increases arising from government spending or currency printing. This is known as the price stability.

• Second, a creation of a space for further government spending through the creation of new currency in the public or macroeconomic interest. The space is the reduced amount of currency through tax collection. Accordingly, this new spending can take place on priority sectors to promote employment and income in such sectors. This is known as the income redistribution.

Therefore, tax income is misunderstood as a source of financing the spending or redistribution of income among the low income sections. In fact, tax should be netted out from government debt in Treasury accounts and, therefore, a new space is created for spending through new currency.

Government borrowing as an instrument of withdrawal of currency by the government

Government borrowing or public debt is a source of withdrawal of a part of currency already created through spending and not collected as tax. As the government can spend through the creation of own currency, it does not have to borrow currency it has already issued to the public to finance its spending. 

Accordingly, the public debt is the stock of government securities issued from time to time to recover a part of sovereign currency circulating in the economy after taxation. The difference between tax and debt is that debt pays interest or return to currency investors whereas tax is the confiscation of the currency by laws and regulations.

• As the fiscal agent, the debt registry or government securities accounts are kept and maintained at the central bank. Therefore, issuances of government securities are settled by the central bank. For example, when the government issues new securities, they are credited to the securities accounts of the investors (banks and private) and debited to the government securities account. Further, relevant currency amounts are debited to reserve accounts of respective banks and credited to the government reserve account. As a result, reserves in the banking system that have already been created by government spending declines by the amount of securities so issued. In the event of reserve deficiency of banks to settle the trade, they borrow reserves from the central bank against government securities. This lending reduces the debt-induced reduction in the reserves in the banking system. 

• Therefore, public debt is the savings account offered by the government to the private sector to deposit or invest the surplus currency they have earned from the government spending net of taxes paid. Accordingly, public debt is the highest quality financial assets or wealth held by the private sector. Therefore, the increase in the public debt is a healthy activity for the private sector.

• Accordingly, the interest rate payable on public debt is the price of the currency issue arbitrarily fixed by the government. As the government is the monopoly supplier of the currency without any predetermined limits, the government has the price fixing power, similar to other monopolies. Therefore, both the government spending and public debt increase over time by the interest rate exponentially because the public debt is designed for the rollover through the sale of new debt issuances together with interest payments capitalized. Therefore, the management of public debt in a maturity profile with varying interest rates is irrelevant. It would be ideal to have an overnight debt profile at nominal interest rate to reduce currency printing required for interest payments.

• In addition, the public debt will rise by new spending net of taxes collected (known as the budget deficit). Therefore, the budget deficit is the annual financial surplus created by the government to the private sector. 

• Therefore, the public debt is not a cost or burden to tax payers. Instead, the public debt is the highest quality financial asset of the private sector that it will never be paid out of its income or taxes. Therefore, governments that run budget deficits through its sovereign currency don't have to default debt. Further, the public debt is the monetary mechanism that keeps the economy monetarized with the state currency to facilitate growing economic activities and employment. Therefore, the public debt is the amount of the net money supply (net of taxes) created by the fiscal operations. In contrast, if the government pays back public debt by generating budget surpluses, the currency supply also will decline by the same amount and create a contraction in the economy.

Price of currency issuance

The MMT believes two types of costs or prices relating to the supply of currency. Those are the taxes and interest paid on public debt. Both prices have macroeconomic impacts on inflation and unemployment. Inflation and unemployment arise as a result of how markets allocate resources in response to the currency prices. As the government is the monopoly in supplying the currency, setting of the prices and resulting macroeconomic impacts are the policy choices to be made by the government.

• Taxes - Higher taxes reduce the spending of the private sector. Therefore, inflation tends to fall and the unemployment to rise due to taxes. The opposite happens in response to reduction in taxes, i.e., higher inflation and lower unemployment. Therefore, the government has to fix the tax rate in a manner to balance between inflation and unemployment.

• Interest rate - Interest rate is the currency income to holders of government securities who are already rich. Therefore, higher interest rates raise the private sector spending through increased interest income. This will result in higher inflation and lower unemployment. In contrast, lower interest rates will reduce the inflation and raise the unemployment. Therefore, the government has to balance the priority between inflation and unemployment when setting the interest rate.

Therefore, if the government prioritizes inflation control, it has to keep tax rate higher and interest rates lower. Accordingly, fiscal policy is considered more direct and fast in inflation control than the central bank monetary policy ideology. However, the use of interest rate instrument for the inflation control contrasts between the two policies as the mainstream monetary policy goes with higher interest rates to lower the inflation and vise versa. 

The MMT generally wishes to keep interest rate close to zero as the public debt is of the highest quality. The government is able to do it as it is the monopoly supplier of the currency. and debt. However, the debt market working along with the central bank interest rates and reserve policies and neoliberal fiscal policy ideology prevent the government's power in fixing its interest rates on debt. However, if the government dictates the market, the private sector has to comply with as it finds no better place than the public debt to invest its currency surpluses.

Accordingly, the MMT recommends very short-term debt to keep interest rates low unless the government wishes to drive long-term interest rates in the interest of the real economy.

Government's foreign currency borrowing that weakens sovereign currency power

The MMT covers operations in domestic currency powers of the government which does not require foreign currency for budgetary operations. However, governments in many developing countries are largely dependent on dollar borrowings although budgetary operations are carried out in the domestic currency. The purpose of government foreign borrowing is outside its budgetary operations as it is intended to support the foreign currency reserve for balance of payments and exchange rate management carried out by the central bank. However, the central bank purchases proceeds of such foreign currency and provides new reserves to the government reserve account as the settlement. When the government uses the reserve balance, the new currency is supplied to the economy by the government.

Therefore, such foreign currency borrowing can be treated as part of the purchase of goods and services (foreign currency as a commodity) by the government where the sovereign currency is produced for payment. Any surplus currency or reserves so created will be absorbed by the public debt as highlighted above. 

However, as the central bank purchases foreign currency under such debt for its monetary operations, accounting of all foreign currency borrowing in the public debt is not correct. It should be accounted as central bank debt or foreign currency liabilities. Therefore, the repayment of such foreign debt by the government is inappropriate and the central bank has to manage the repayment through its foreign currency receipts generated from the real economy and not by the rollover of government foreign currency debt. Therefore, government foreign borrowing is a highly fictitious operation that expose the economy and public to currency crises as witnessed from default of government foreign debt by central banks from time to time in many countries.

Para-currency creation and supply by the banking system

Para-currency means deposits created by the banking system. Deposits are convertible into sovereign currency or reserve money as the central bank provides reserves or liquidity to the banking system under its monetary policy framework. Therefore, deposits are a part of the money supply circulating in the economy.

However, the creation of deposits is different from the ideology presented in the mainstream monetary theory. The MMT evidence is that deposits are created by bank lending that takes place through double-entry book-keeping. The underlying operation is that banks lend by accounting an asset to the bank and crediting the borrower's bank account by the same amount. Therefore, banks don't need reserves or deposits as a source of funds for lending. 

The borrower then can use the loan proceeds credited in the deposit account when necessary for spending or payments where the such payments may be received as deposits to other banks. The relevant cash outflow of the bank for the withdrawal of the deposit to other banks is settled through reserve accounts at the central bank. In the event, the payee bank's reserve account is deficient, it can borrow reserves from the central bank to settle the payment. Therefore, banks lend first and then finds reserves to settle the cash outflow involved in lending.

Accordingly, banks are not financial intermediaries, but the creators of the para-currency through sovereign currency system regulated and maintained by the government and central bank. Therefore, bank regulations such as reserve requirements, liquid assets, capital and bad debt provisions are nothing but how banking accounting is maintained to comply with accounting principles such as profitability, solvency and liquidity to prevent bank fraud and mismanagement. 

However, if there is the general trust in the sovereign currency system, banks are able to carry on lending business through double-entry book-keeping without any of such banking accounting. The lender of last resort by the central bank is designed to protect banks from reserve/liquidity problems and crises. Therefore, only the banks licensed by the government are permitted to carry on such lending based-banking operations under its protection and regulation.

Therefore, the creation of deposit money in the modern sovereign currency monetary systems is completely different from what is presented in the money multiplier model of the mainstream monetary theory.

Central bank monetary operations that affect the supply of currency

Although the mainstream monetary theory believes that central bank monetary operations determine the level of reserve money (or currency) and money supply, the MMT view is that the central bank operations are nothing but inter-bank settlements of currency transactions arising from budgetary operations such as spending, taxes and debt. therefore, central bank open market operations are nothing but the trades of government debt/securities to satisfy reserve/currency needs of banks arising from budgetary operations. 

For example, central bank's purchase of securities from banks adds reserves to banks while the sale results in mopping up of reserves from banks. Accordingly, the ownership of government securities is changed between respective banks and central bank through the double-entry book-keeping in securities accounts and reserve accounts operated by the central bank.

However, central bank monetary operations and underlying policy interest rates carried out arbitrarily on the belief of the old monetary theory and inflation cause significant disruptions to the sovereign currency operating system and the real economy. In the real world, central bank changes its policy interest rates arbitrarily in cycles and cause corresponding economic cycles inducing budgetary operations to counter such cycles. 

Accordingly, the policy interest rate has become a shadow price of the sovereign currency system and has adverse impact on the fiscal spending and economy through interest payment on public debt as highlighted above. In fact, central banks being fiscal agents generally drive their policy interest rates through interest rates on government securities via open market operations. 

Accordingly, significant conflicts arise between the government and central bank over the fiscal policy and monetary policy. It is this conflict that has led to criminal investigations against the US central bank chairman at present because the central bank has kept policy interest rates high for so long that the interest cost on government securities has risen to historic levels. The interest cost on fiscal operations is highly alerted in other countries too due to unexpected monetary policy operations of central banks.  

Further, the economic rationale of policy interest rates is highly criticized as they are driven on statistical forecasts on consumer price index and inflation expectations to control future inflation around the numerical targets although inflation is largely a geopolitical and monopoly market outcome which prevails beyond the control of the policy interest rates or central banks.

Concluding remarks

• The underlying recommendation of the MMT is that the government with sovereign currency powers can run deficit spending through the creation of the currency without the fear of inflation as long as the country's production is below its capacity (i.e., unemployed resources) or the capacity is to increase. The underlying reason is that fiscal spending will improve both the demand side and the supply side and growth which will suppress the inflationary pressures that may arise from the creation of new currency and additional demand. Therefore, it is a political choice whether the currency is used for the expansion of the real economy and living standards. In a way, this is an extension of the Keynesian recommendation in 1930s to counter depressed economies. 

• Although the word MMT was not explicitly used, it is the same budgetary and monetary mechanism that has been used by almost all governments of the countries to uplift living conditions and human development in the past from their tribal levels. One can imagine what could be the present status of development of the economy and living standards in Sri Lanka if the past governments had not used the same mechanism. The present crisis situation in Sri Lanka is the direct result of the government not using the sovereign currency power due to the compliance with the neoliberal-based IMF ideology of restricting the budgetary and sovereign currency powers. The excessive dollarization through government foreign borrowing that has compromised the sovereign currency power for the development of the real economy is the cause of the default and connected economic crisis. This has created a significant instability in both the economy and political governance of the country.

• Old monetary theory is built on arbitrary assumptions that cannot explain operations of modern monetary systems in the real world and their impacts on the real economy. For example, money multiplier model is the backward analysis of the money creation under the control of the central bank which is not helpful for the creation of the currency for the future benefit of the economy benefiting from the economic role of money. Further, modern inflation is a result of various demand side and supply side factors and, therefore, not established as a pure monetary phenomenon as the old monetary theory believes. Its tribal view that the money does not have real effects or development role is also not accepted in modern monetary economies as modern money is a factor of production. Therefore, anti-government attitude that inflation is a result of the budget deficits an debt is baseless where no questions are raised on the part of inflation attributable to private spending and debt creation.

• Given how government spending takes place through the creation of sovereign currency as presented in the MMT, the present form of the government budget presented and analyzed under the same principle of private budgets is baseless. Therefore, fiscal rules such as tax revenue, primary balance, budget deficit and debt stock benchmarked on the country's GDP value are meaningless. The only importance of those fiscal rules is to help political leaders to escape from implementing public welfare policies while happily funding the maintenance of the political governments. Therefore, present form of political analyses of the budgetary performance has no relevance to the performance of the real economy and living standards. For example, although the improved tax ratio is praised as the improved fiscal discipline, it is alternatively indicative of higher unemployment and likely recession of the economy and living standards as highlighted in the MMT.

• The conflict between the fiscal policy and monetary policy which is officially facilitated by the present ideology of monetary theory and neoliberalism is the biggest risk to the stability and development of modern economies. In fact, many countries have reached the present status of development and living standards through the coordinated and consolidated policy frameworks that led for fiscal spending and distribution of currency in the public interest. In fact, some developed countries implement unemployment benefits schemes. Therefore, the economic policy management has been a de facto MMT.

• However, the network of mainstream economists and central banks who blindly believe in the old monetary theory of inflation is furious of the word MMT because the MMT smartly and factually challenges their mythical monetary ideology and risks their global professions. Therefore, almost all mainstream economists who do not wish to understand the MMT framework brutally criticize the MMT proponents as economic busters through money printing and hyper-inflation. Their aim is to discredit the MMT among the country leaders and professional community. Accordingly, the MMT opponents operate in a global network led by the IMF and frontline university professors to save their old monetary theory and dominance in global macroeconomic management. This criticism is primarily because they are unable to or do not wish to understand facts behind actual operations of modern monetary systems that take place through double entry book-keeping among the government Treasury, central bank, banks and the non-bank private sector on currency transactions in the economy.

• Therefore, developing countries like Sri Lanka which have been trapped in old ideology of government budget and monetary theory enforced by the IMF-neoliberalism will never be able to emerge as developed countries as almost all country leaders are not prepared to change the economic management model to suit the ground realities or respective countries. In fact, neoliberal fiscal rules have now been enacted in laws of Sri Lanka and, therefore, the old monetary theory is a part of the law of the land. If any revolutionary leaders wish to innovate the macroeconomic management system to improve livings standards through the real economy, they will find extremely difficult to amend such neoliberal economic laws independently from the global network of the IMF.

(My sincere hope is that the readers of this article will pay attention to technical inputs presented here and take time to study further the literature on the subject for better management of modern monetary economies in the common interest of better living standards by leaving out personal ideologies.)

(A descriptive article on this subject released in this blog on 9 August 2022 is also attached here.(Article))

(This article is released in the interest of participating in the professional dialogue to find solutions to present economic crisis confronted by the general public. All contents in the article are based on the author's research and views on the subject which have no intension to personally discredit characters or ideologies of any individuals.)

P Samarasiri

(BA Hons Economics, University of Colombo, MA Economics, University of Kansas)

Former Deputy Governor, First Central Bank of Sri Lanka

(35 years of experiece in staff class in the Central Bank, inclusive of Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 13 Economics and Banking Books and a large number of articles published.)