By Hema Senanayake –
Hema Senanayake
I have sent this letter to the Governor of the CBSL. It might contain some technical description of economic concepts hence some readers might find it difficult to comprehend. Yet they may feel the rationale of what I have pointed out in the letter.
Covid-19 Economic Fallout – A Solution Through the Policy of Public Money Administration for Market Economies.
I would humbly recommend you explore the possibility of adopting public money administration policy until we get over with this severe global health crisis.
Our country is already in severe debt. If the government respond to the spread of Covid-19 via the existing monetary policy approaches our government and the country will be overwhelmed by debt, would limit our ability to face the calamity effectively and would delay recovery once the pandemic is contained. This dynamic will be changed for better, by adopting public money administration policy. This will enable the government to spend billions (or even trillions) of rupees without creating demand driven inflation.
The said policy will carefully and gradually switch to a policy known as Full Reserve Banking from the current Fractional Reserve Banking. Japanese macro-economist Prof. Kaoru Yamaguchi has carefully studied the conversion by applying DSGE (Dynamic Stochastic General Equilibrium) model and find out that the conversion can be done smoothly and the same has been found out by a Working Paper (No. W/12/202, August 2012) published by IMF.
However, both the author of IMF Working Paper and Prof. Yamaguchi are in favor of Full Reserve Banking and suggest to get rid of the Fractional Reserve Banking permanently. However, I do not hold that view because I strongly uphold that in order to function any market economy efficiently, the economy needs a flexible banking system that can create more credit out of a fairly small amount of incoming deposits and this requirement cannot be met by Full Reserve Banking even with the application of a monetary rule suggested by Milton Friedman. But, I observe that in a crisis like this, temporary transition to Full Reserve Banking system would be extremely beneficial, as the process provides enormous amount of debt free money for the government to face this crisis.
This is a crisis, I think, even larger economies cannot face just by reducing interest rates and resorting to another round of quantitative easing.
If you require a serious brain storming, on this idea, I would suggest you to invite Prof Kaoru Yamaguchi to participate it, through electronic media, as the situation does not permit him to visit in person.
Thank you,
Yours sincerely,
Hema Senanayake
rbh / March 18, 2020
Our country is already in severe debt. If the government respond to the spread of Covid-19
Stop election use this fund for Health Care.We must stop the global epidemic , warned that much more needs to be done passing the virus on to others.
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Lal de Mel / March 18, 2020
The Economist Deshalal de Mel has pointed out the need to reduce the budget deficit from the 8% estimated with recent tax cuts to 5%, to be in a position to raise funds in the bond market. Economists estimate a 2.2 to 2.4% drop in world wide GDP because of Covid-19 Pandemic. We need the help of IMF and the World Bank to steer the economy during the next few years. A moving fuel tax is required to maintain the fuel prices and collect the estimated increase in income by IOC, CPC and the LPG gas companies to fund the Corvid-19 impact and fund the construction of the Colombo-Kurunegala Expressway.
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Hema Senanayake / March 19, 2020
The proposal is to transition from present Fractional Reserve Banking to Full Reserve Banking to enable to raise debt-free money to face the unprecedented pandemic to keep floating producers, wholesalers, small and medium businesses, self employed workers including three wheel operators, bankers, other financial institutions etc. IMF research found out such a transition can be done smoothly. We are facing a pandemic, definitely it might need to increase budget deficit instead of reducing it.
Economists need to talk about the proposed plan. This is a plan to raise debt free money not to raise funds in the bond market, in a situation total money stock has and would have depleted.
Hema.
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Rev Medalankara de Choppe / March 22, 2020
Ha Ha Ha the former Chairman of CIC had spoken. What nonesense is this.Why do we need the Kurunegala expressway, there may not be enough people to use it, the way this country was ruled by the govts since 1977 eagerly helped by the cosy private sector.
You want a solution, reduce imports of petrol export a part of the distillate at Sapugaskande.Keep only the Diesel and furnance.
Get the joker who run about in vehicles with an engine capacity of over 1100 to walk, tax those vehicles with engine capacity over 1100 at Rs 10,000,000,000 a year and provide incentives to export the used vehicles. Give them a time span 1.5 years and if they fail tax the vehicle Rs 1000,000,000 for he duration of the ownership.
These are vehicles robbed from the tax payer aloha Ranil W
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Douglas / March 19, 2020
Can some one out there tell me whether the Central Bank Chief – the Governor is a member of the “Task Force” headed by the Army Commander, appointed to handle “COVID 19”? I am asking this, because, there are quite a lot of matters connected with the “Financial” situation that connects with the Banking system and the economy.
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Jayantha de Alwis / March 19, 2020
If Sri Lanka to survive from this COVID-19 catastrophe, immediate cancellation of the election is imperative. As we can see, another set of crooks are given nominations by all parties. Therefore the voters have no choice but to elect the same batch of crooks or a different set of crooks. We, the people should force the government to cancel the election and use that money to fight the COVID-19. If the election goes ahead, people should boycott it. If not, there is a good possibility of most voters might get the virus at the polling station by using the same pencil/pen used by a contaminated person.
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Rev Medalankara de Choppe / March 22, 2020
Jayantha de Alwis.Are you mad? Without a parliament how can they rob us?
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K.A. Sumanasekera / March 20, 2020
I thought Dr Rani and his best Finance Minister in the world Galleon Ravi did that fabulously with the EPF Money. which created the PT Family trust the biggest owners and players of the Lankawe Market Economy .
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That is the only place where there is Public Money in quantities which can help Governments to help the Economy..
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Wonder how much is the Balance there now?…
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Upali / March 20, 2020
K A Sumna…
Wonder how much money there now?
Ask Cabral.
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Aloy / March 21, 2020
I found that BBC programs are interesting on Covid 19. So are those of CNN. I was watching the “Cuomo Prime Time” of CNN by the presenter Chris Cuomo whom I believe is one of the finest of all time, one medical expert of US was talking about Covid 19. Actually he was just confirming what another top expert Tony Fauci on the previous day. In essence he was confirming what our own researcher Sameera Samarakoon explained in one of his video interviews. Sameera explained with a Corona virus model on a computer about his theory that a cocktail of already approved drugs is the correct solution. So, why not try out his remedy on some critical patients for whom there is no other solution. According these experts there are two aspects to this attack: one is the anxiety/stress and the other the virus. Solutions seem to come to different people in different ways. Our ordinary folks factor everything and use the bottle to keep the spirits up and hope the inbuilt immunity take care of virus. The American when they hear about pandemic run immediately to the gun store. So, which county is more civilized.
Today one of our close relatives who is a senior medic was sending messages one after the other advising us to take a medicine called “cloro quinine” immediately. This is nothing but quinine something similar to Kohomba (or Neemb) which is very bitter. Perhaps we have been taking Kohomba leave for this type of viruses as well as Malaria before the Brits introduce quinine. Perhaps this explains why our villagers put Kohomba leaves infront of houses when we get these illnesses. If bitter medicine is the answer for Corona, why not the Italians take Campari, their own drink invented by Gaspore Campari of Novara. It might keep their spirits high as well as fight the disease.
Actually the name of the medicine was given as Hydroxycloroquine Sulfate (200mg).
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Amy Rodrgo / March 22, 2020
Mr . Hema Senanayake, I fully agree with you . I find out PM and Other Minsiters has a geneunine desire to get rid of the National debt . How ever with my reacent expeince with the GOvernmnet high ranking offciers . They do not change the way do their job to the country . I worked in the public sector 20 yrs ago and same attitueds and same old way of doing the sevice to the country .
There are plenty of way to increase GDP in SL . In fact I discuessed it wih a genunie inetntion . But Service sector does not willing to do that very sad .My prayer is that the attitudes of the GOvernmnet servant to be changed .
I have read this report and I am using this section to convinced the Governmnet services .February 2019 THE WORLD BANK
Low revenues and high debt as a share of GDP are key macroeconomic concerns. The major causes of low revenues as a share of GDP are: the low number of tax payers (less than 7 percent of the labor force and formal establishments pay income tax); reductions in statutory rates without commensurate efforts to expand the tax base; and inefficiencies in administration and numerous exemptions. Low revenues combined with largely non-discretionary expenditure in salary bill, transfers, and interest payments have constrained critical development spending and squeezed expenditure on health, education and social protection, which is low compared to peers. The debt levels are high, and the overall debt portfolio also points to some important risks. Sri Lanka has been on a 3-year Extended Fund Facility (EFF) program with the IMF since 2016, which is primarily focused on increasing revenues. The program calls for fiscal consolidation, transition to flexible inflation targeting, and reforms in the areas of public financial management, state enterprises and trade and competitiveness.
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rama / March 22, 2020
You are expecting too much. Firstly the PM or his brothers or his dumb lackeys do not understand Fiscal Policies and Banking and Economic upheavals .This stuff is too intricate to these people who probably would not understand what is going on and hence they will never ever change their way of thinking or their way of managing their day to day functions. Basically they will shake their heads in acceptance and then laugh at the whole change if there are any. We can see what is happening right in front of our eyes. This beautiful country is no more a pearl of the Indian Ocean , it is battered like something caught in a tornado
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Inguru da Silva / March 22, 2020
Amy: Big bull. Stop talking nonesense.
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