Economy Forward

  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...