Printing money: The CB paradox

The Finance Minister's New Year relief package announced this week to ease the pain of his hardpressed fellow citizens so soon after the 2022 Budget has raised eyebrows across the board. A pleasant surprise to some; alarms bells to others.

Sri Lanka is known for living beyond its means, and now having to pay for it. On the face of it, the package is a people-friendly move. But hard-nosed economists will ask how the Government can afford it. With no plan to recoup the Rs. 229 billion earmarked for the programme, the only avenue open is to print the money. More money in circulation is higher inflation, the silent killer of the Cost of Living, already at a record 12 percent.

According to available statistics, the Central Bank printed a phenomenal 691 billion new rupees last year alone. There is no better explanation on the danger of printing money than that given by the sole authority allowed to do it -- the Central Bank. Having said that firstly, the currency should be genuine, it says "another way of losing people's trust in money is when a country experiences a significant increase in prices of goods and services continuously which is considered a hyper-inflationary situation".

The bankers' bank refers to German currency a hundred years ago when a loaf of bread that was one Deutche mark rose to four billion marks. "People had to carry money in wheelbarrows to purchase goods". This is taught to all O’ level students of economics as a textbook case of inflation. People lost faith in money and it led to the collapse of banks and businesses. So repeats the Central Bank of Sri Lanka.