Ajith Perakum Jayasinghe
Currency notes issued by the National People’s Power (NPP) government, signed by Central Bank Governor Nandalal Weerasinghe, are not yet in circulation.
Then, is it false that the government printed Rs. 100 billion worth of currency?
That’s correct; it’s a different process. No notes have actually been printed. Instead, money has been created.
Take, for example, the treasury bonds from which loans are taken. When these loans mature, they need to be repaid along with interest. To do this, the Treasury must have funds, which generally come from taxes and other government revenues.
Typically, government revenue isn’t enough to repay these debts, so the government borrows further to cover debt payments. This time, however, a different approach was taken.
The government used funds that it didn’t physically possess to settle the debt by creating new money, though without printing notes. Nowadays, money isn’t only in the form of cash and coins; for example, your salary goes to your bank, and you use a debit card to buy goods—no physical money changes hands. This is similar to that concept.
What effect does this approach, which avoids printing notes, have?
The outcome is similar to what would happen if new notes were printed. The rupee’s value declines, the dollar strengthens, prices rise, and the cost of living increases.
Is this legal? Yes, the Central Bank of Sri Lanka has the authority to print money.
Will this affect the International Monetary Fund (IMF) program? Absolutely. It’s clear that this money creation was done without the IMF’s approval, which could erode confidence in the program and weaken investor and public trust.
Since debt restructuring has ended, the government may not be strictly following the IMF’s guidelines. However, since loans from the World Bank and the Asian Development Bank are tied to the IMF, it won’t be easy to exit this relationship.
Why is President Anura Kumara Dissanayake doing this within a month of taking office? The reason is simple: they are inexperienced and somewhat arrogant. They only take advice from people at their level, and officials just follow orders.
I’m explaining this in simple economic terms. For a more detailed understanding, consult an economist.
