15 December, 2019

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Appointing A New Governor For The Central Bank!

By Hema Senanayake

Hema Senanayake

Hema Senanayake

Why the appointment of the Governor of the Central Bank is so important? I kindly invite you to think about it for a little moment before you read this brief essay.

My enlightened view is that, if the country got a competent governor for the central bank, I do not care who is being elected to be the President or Prime Minister of the country when it comes to the issue of the economy and its growth. Why do I say so?

It is because, the governor of the central bank is the only man in our governmental system who can effectively change the total output (i.e. production) and who can create more sustainable employments than the entire cabinet could. Governor is the only single man who can effectively change the nation’s Current Account and Balance of Payment situation on which the stability of our domestic currency the rupee depends and in turn, upon having a stable rupee Foreign Direct Investments would increase. In fact the governor of the central bank is the man who can save the government politically. If economy fails, “good governance government” fails.

Perhaps you might think that Prime Minister Ranil Wickremesinghe has understood the critical importance of the role played by the Central Bank as he proposes that the central bank must be an independent institution. I am sorry, let me call the spade is spade. Administratively, any central bank can be made independent but theoretically and for practical reasons, no central bank can be made independent functionally if a taxation authority which is defined as a government which can collect taxes, does not support it.

The slogan for independent central bank was a catching idea promoted by central bankers prior to the Great Financial Crash of 2008. During this crash, the European Central Bank (ECB) was the only significantly large central bank which was not backed by a taxation authority directly. As a result European Union had to go after IMF in finding solutions for its member states and economies of some member states crashed significantly during the crisis. As far as I know ECB is now looking for some kind of arrangement to get the backing of all taxation authorities of EU. There is a clear technical reason (macroeconomic reason) as to why the central bank needs the backing of taxation authority, but I am not venturing into discuss this point in this brief essay. However, as at now there is no huge outcry for independent central banks, as far as I know even IMF is not interested in that slogan any more but our Prime Minister does. For a moment forget about it.

In regard to Sri Lanka, the true fact is that, if the Governor is professionally competent and if he knows central banking, he could have obtained the necessary independence by earning a reputation for his or her professionalism, as the Monetary Law Act under which law the central bank has been established provides ample legal support if any competent Governor chooses to be independent. But this is not what happened. Instead of fighting for his professional independence, the incumbent Governor has surrendered his independence seeking refuge under the Prime Minister by getting the Central Bank listed under the Ministry of Policy Planning. According to the monetary law act, the Central Bank must be listed under the Ministry of Finance. When somebody’s mind is clouded with shear arrogance that person does not care about even his own integrity. By deviating from what the law says, if Ranil could determine that the line ministry of central bank must be the Ministry of Policy Planning, then some other future Head of the Cabinet might determine that the central bank be listed under the ministry of tourism or whatever: sad state of affairs under the good-governance government.

First, Prime Minister put the central bank under his ministry. Then, he wants to remove part of it elsewhere. According to a recent report published by Colombo Telegraph, the “Cabinet is set to move the Public Debt Department, Exchange Control and control over secondary markets outside the purview of the Central Bank and place them directly under the Ministry of Finance.” This report must be true because Deputy Minister Eran Wickramaratne has mentioned exactly the same opinion recently in an interview conducted by a TV channel. Eran is formerly a CEO of a major development bank. When he himself believes in this kind of nonsense, I have no doubt that the collective wisdom of this government in regard to the central banking is very novice.

Now the government is going to remove certain functions from the central bank. Forget about politicians, so, what does the Governor of the Central bank think about it? Does he support it or oppose it? It is from his answer to this question that we would know as to whether he knows his job well.

Main function of the central bank is to put the country’s monetary infrastructure right, upon which infrastructure the whole physical economy depends. The monetary infrastructure is a very hypothetical system as modern money is not real and in the present system this money is not created only by the central bank but a lot of money known as credit money is created by the country’s banking system too. This is the system that the central bank is supposed to manage in order to put the best possible monetary infrastructure for the country. You may say that the main function of central bank is to execute the monetary policy but when we say so, we (at least the Governor) must be mindful that the central is actually managing a larger nonphysical system in order to achieve the best possible economic outcome for the country.

Can this job be done without having the necessary tools – policy and administrative kind – that could interfere in managing the nation’s current account, Balance of Payment, foreign reserves and having ability to advise on the fiscal policy to the government? No, it cannot. Then, can the central bank manage at least the nation’s current account, balance of payment and foreign reserves rightfully when the government removes the Public Debt Department, Exchange Control and control over secondary markets outside the purview of the central bank? No, it cannot. If the Governor of the Central bank does not oppose to this move, then it proves nothing other than his ignorance to this vital subject. By now, after a fairly long period of doing the job, it is Arjuna Mahendran who knows best as to whether he knows the subject or not. If he doubt about his competence it is best for the country that he inform the government that he is not available for the job after his current term ends at the end of this month. If he does, then it would open an opportunity for the President to appoint a new governor without much problem.

In that event, I may suggest the President to relist the Central Bank under the Ministry of Finance and to appoint a Governor who can win greater independence for the central bank by proving his professional wisdom in managing the nonphysical system of monetary infrastructure. Do not believe on guys who would talk about mere executing monetary policy, interest rates, reserve ratio, managing foreign reserves, listing rupee bonds in international markets etc. Trust on a guy who is capable of managing a dynamic hypothetical system flexibly and accurately.

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Latest comments

  • 8
    1

    Civil society should ask for the assets of Mahendran and Cabraall should be frozen and Perpetual Treasuries investigated.

    A full investigation of Mahendran and Nivard Cabraal and their bond scams, insider trading and currency manipulations is necessary.

    It is not enough to simply ask that Mahendran’s contract end – and let him off to go and live the high life on his ill gotten gains in Singapore!

    Mahendran and Cabraal must be held accountable to ensure FUTURE Accountability of CB governors and ensure that never again will this kind of looting of the national economy happen at the Central Bank.

  • 3
    5

    If you are so enlightened, are you prepared to become the governor of the central bank?

    • 5
      1

      William,

      “If you are so enlightened, are you prepared to become the governor of the central bank?”

      Alas! This Hema Senanayake is only an armchair critique. He in fact sucked up to Mahinda Rajapaksha in those days and he is still carrying out that tradition. It seems he has taken over the function of overseeing the function of Central Bank through CT posts! During those barbaric days when MR and the clan went on a spree of vandalizing this country these buggers like Hema, AKD, so called civil activists, Dewasiri et al were were hiding their tails under legs and not a whimper was heard from their now uncontrollable mouths. This HS lives in the stone age and his perception of the CB operations and methodologies are outdated. MR, ably assisted by the opinions of the likes of HS, completely destroyed the country and its economy and RW has taken the initiative to reform the whole system as a result of which CB has changed the methodology in the issuance of bonds which has badly affected the wheeler dealers of MR. Hema seems to represent these wheeler dealers and that may be why he is criticizing RW and the governor. They are desperate to get rid of Governor so that they can enjoy the underhand dealings of MR era. Earlier also they made the same allegation against AM but none of the allegations could be proved by the COPE or the Court and AM was exonerated by the Court! Now did any one of these monkeys accept responsibility and guilt for contempt of AM for false allegations and character tarnishing? No because they have no manliness to cover by the trousers they wear! This time too it is the same type of allegations and nothing will change despite their barking in certain selected media rags. Sri Lanka must be the only country in the world where so called civil activists and bankrupt parliamentarians fake professionals like Hema are trying to convict professionals like CBG on TV channels and internet forums with the ulterior motive of destabilising the government to make way for a corrupt, fascist criminal regime.

  • 3
    0

    Honestly cannot think of a suitable candidate to become the Governor.

    There are quite a few retirees such as Indrajith and Wije but cannot think of a candidate in the 45-60 age group with right sill sets. May be private sector nominee is the only choice with integrity and credentials.

    By the way a close relative of a senior politician is in the running for the job.

  • 1
    0

    I can think of one. Mr. Wijeytilleke who is of course now retired. However, I agree that an independent Central Bank with a unbiased Governor whose terms cannot be restricted by the whims and fancies of ever changing governments will most definitely make an enormous impact. We have seen this in the United States, where the Governors of the Banks of England, Canada and also India never changes with the changes of “politicians”. Try it and see the change.

    • 0
      1

      Are you talking about Rienzie Wije?[Edited out]

      • 0
        2

        Yes.

        • 2
          0

          Perhaps you should look more into his record of so called integrity, as well as that of his family in the industry in recent times.

      • 2
        0

        Rienzie is almost 80 years old but still in demand.

        Need to get your head examined to appoint someone like that to CBSL.

        PLCs like older independent directors over 70 since the MDs and CEOs can have their way.

        Also recent news reports from a foreign bank has damaged the reputation

        • 0
          1

          If the head is good, after examining then where is the problem? What about Greenspan, the first German Chancellor after WW II and several others?

  • 1
    1

    Yes, CBSL should have worked first and foremost with the local government taxation physical reality. Instead it ventured into the non-physical entity that is meant to build up India, so a new regional monetary system can be created.

    And all PM could think of was for American GMO-grains to replace ancient Lankan grains on ancient Lankan soil, and be transported to India via Land-Bridge to feed Indians – that, with Western LGBT-issues to make the new corporate world more compliant to Western-Imperialism (last time it was Christianity)….……..(Ok, that non-physical entity will become physical, but in about 30 years’ time)

    At least with the old regime, China was an actual physical reality, operational with real money.

    But wasn’t CBSL Governor hand-in-hand with PM on this one (federalism included)?

    • 1
      1

      “and be transported to India via Land-Bridge to feed Indians”

      Can an ant feed an elephant???

      India is Buddha’s land, the so called ‘Buddhists’ should not only feed Buddha’s country but also be a Daasi. Don’t you think it is better for you women to work as servants in Buddha’s land instead of being a slave in the white man’s land?

      Btw, are all those who speak Bana (Buddhist preaching) and pose as a pristine pure Buddhist hypocritical rascals who chase after filthy lucre at the expense of the country while selling Buddhism wholesale?

      • 1
        2

        GMO grains have an unnatural 100x more grain on one stalk.

        Buddha came from Nepal. Indians couldn’t comprehend Buddhism, but Nepalese, Sinhalese, Burmese, Indo-Chinese belonged to the ancient Buddhist league beyond pre-history.

        White man do not treat us as slaves and are of Egalitarian quality on their soil.

        • 1
          2

          Ha, ha, ha…
          What an ignorant fool you are…
          Go and ask all those Buddhists who go on pilgrimage to Dambadiva…
          Where Dambadiva is???
          Is Dambadiva in Nepal, Sri Lanka, Burma, or China…
          Without even knowing the very basics such as where Buddhagaya, Kapilavastu, Dambadiva, etc. are, this moronic imbecile talks of Buddhism. This is what happens when a Parangi converts to Buddhism.

          • 1
            2

            Indian invasion obviously. But your racism is typical of your people,

        • 1
          2

          “Buddha came from Nepal”

          Then why Nepal is 90% Hindus?

          • 1
            1

            There was no Nepal during Buddha’s period. Lumbini where he was born also was a part of Baratha (India). Kushinagar where he died was also in India. Nepal of course is a Hindu country. China is communist and Mahayana Buddhist. This Parangi does not know anything about Buddhism but pretending to be a lover of Sinhala-Buddhist, may be to make a few in-laws happy.

            • 0
              1

              You might try to pull down a person’s mixed heritage with usual racial epithets, but it shows that a person like you is ashamed of being merely Tamil.

              You also find it hard to analyze history too well. There was no India and Nepal in those days but a generic Hindu inhabitation. Buddha, a Hindu Prince, belonged to the dynasty that had roots with the waning Tibetan Buddhist heritage. The Buddhist League of Nations became alive, yet again, after Gautama.

              (ps. in-laws are Catholic).

  • 1
    1

    In the interim, appoint Dr. W.A.Wijewardene & Anila Dias Banadaranayake.

  • 1
    0

    Reading this essay and the comments thereto,Arjuna Mahendran has been sent home eh?

  • 2
    0

    Ranil can appoint Shanthanayan Devarajan, currently Chief Economist of the World bank Middle East and Africa region. He was responsible for the UAE to float the fuel price. He is based in Washington and may be reluctant to leave a top job. Son of B.R.Devarajan former member of the Ceylon Civil Service who served in senior positions in Sri Lanka and then the UN. His maternal grandfather was A.M.K.Coomaraswamy, Registrar of the Ceylon University College (later University of Ceylon and now University of Colombo. Shantha served as Professor at the John Kennedy school of government, Harvard University before joining the World Bank. He was also Chief Economist, World Bank South Asia region which covered Sri Lanka

    • 1
      1

      NO GO he is a Tamil
      We are looking for a sinhale buddhist for the post.Am I right KAS.
      Thanks anyway for the suggestion.

      • 1
        1

        PROUDMAN

        “We are looking for a sinhale buddhist for the post.Am I right KAS. Thanks anyway for the suggestion.”

        We also need a scapegoat/whipping boy preferably a Tamil Vellala, Muslim or a Vellala Christian.

        Please contact Kasmaalam KASumanasekera for details and first interview, am confident KASmaa has the knowledge and experience to train any new novice Governor of Central bank.

  • 0
    0

    What about Deputy Minister Eran Wickramaratne who was formerly the Chief Executive Officer of the NDB Bank.

    What is your opinion ?

    Heard Dinesh Weerakody is in the running. Not sure about his credentials to be the next Governor.

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