CB independence doesn’t mean lack of accountability: Harsha

13 September 2022 08:11 am - 14 - {{hitsCtrl.values.hits}}

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As calls are growing for the independence of Sri Lanka’s Central Bank, which was also clearly laid out in the staff-level agreement with the International Monetary Fund (IMF), there are growing concerns among certain sections whether total independence would mean lack of accountability for the actions the monetary authority takes to maintain price stability.

The Opposition lawmaker and economist, Dr. Harsha de Silva last week pushed back against such concerns and said the Central Bank’s independence doesn’t mean that the officials aren’t answerable to the public for the actions they take.

In many countries where central bank independence is practised rigorously, the members of the Central Bank Board of Governors are nominated by the executive branch and they are confirmed by parliamentary or congressional committees while the Chairman of the Board of Governors is questioned by those legislative committees from time to time.

For instance, the Chairman of the Federal Reserve in the United States and the Governors of the central banks of the United Kingdom and Europe—the three most prominent central banks in the world—have been brought before their respective legislative committees from time to time over the last many months to answer why they could not meet their 2 per cent inflation target. In the US, consumer rose to a four-decade high of 8.5 per cent in July, 10.1 per cent in the UK and 8.9 per cent in the eurozone due to a surge in demand, supply chain bottlenecks and the Russia-Ukraine war.

“There are many models. I think in countries like New Zealand, it is in the constitution that if the inflation target is not met, the Governor has to find a new job. So, there are some very strict targets put in, in some countries. But in other countries they are not as tough as others”, Dr. de Silva told a virtual forum last week organised by the Certified Management Accountants (CMA) of Sri Lanka.

The fiscal policy dominance over the monetary policy has been a conspicuous feature in Sri Lanka, which gravely undermined the Central Bank’s independence. This is also blamed for the current and past Balance of Payment troubles which caused the country to seek IMF bailouts 17 times including the latest one.

“The Central Bank independence could mean different things to different people. But what it means to us is to take it off from the grips of the Treasury. What we want to do is to remove the fiscal dominance of monetary policy”, Dr. de Silva remarked.

“It’s not the fault of the Central Bank that it is printing money. The Central Bank is printing money because the Treasury is forcing them to print money,” he noted.

Explaining himself further Dr.de Silva said what he is looking at is disallowing the Central Bank from purchasing Treasury bills and bonds in the primary market, although it could trade in the secondary market. While the draft of the new Monetary Law Act (MLA) is now available, there have also been discussions held to the effect of whether there must be a change in the structure of the Monetary Board and if the Secretary to the Treasury must be a member of it. Further, the Central Bank accountability also comes from whether it meets the objectives clearly laid out in the MLA such as maintaining price stability and answer to the people should it fails to meet those targets.

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Comments - 14

Kichlan Hussein Tuesday, 13 September 2022 08:36 AM

Independance of central bank plus a body which will govern all policies such as fiscal policy to ensure long term 15 to 25 year plans are executed without disruption will be a good combination supported by a truly independent judiciary.. In these 2 years if RW can change laws for the right things to happen for the country supported by SJB and others who believe in doing the right thing will be good for the country.

Tissa Fernando Tuesday, 13 September 2022 08:52 AM

This guy appears to have taken a uturn and sound more like his leader.

Dillan Tuesday, 13 September 2022 09:06 AM

In any one can any time become srilankan MP by removing somebody from his list. Then How can we call them "People representives "

BuffaloaCitizen Tuesday, 13 September 2022 09:14 AM

Aiyo don't compare SL Central Bank to those in other countries. It is like comparing Idi Amin to Mahatma Ghandhi. SLCB is all yakkos without ethics and principles waiting to do a favor and get a favor. With that, when a double yakko like Cabraal is nominated, it is game day everyday.

Dharamasri Rama Tuesday, 13 September 2022 09:23 AM

MP Harasha has no solution, but just romancing talking putting up his ineffective Dr. credential trying to get credibility. The Central Bank printing money is most definitely the fault of the staff and officials there. They are quite happy to get their own salaries paid through by the printed money through the Treasury. Any even partially financially educated person would see the obvious conflict-of-interest with the Central Bank staff wanting their never taxed pay packets to continue unabated, and would stoop to any money printing to achieve that.

Curious Tuesday, 13 September 2022 10:21 AM

You have missed out the Duty Free vehicles. Public sector appointments come with a bag full of goodies. No physical work. No work for the brain. Just enjoy.

Rasindu Abe Tuesday, 13 September 2022 10:13 AM

I don't know what specialty Harasha got his PhD in but he's definitely not honest, and using sham talk to con the unwary. Identified that at least one Harasha's claims is deceitful - about the New Zealand Reserve Bank (Reserve Bank is their name for their Central Bank) Governor having anything that can affect his job in the New Zealand Constitution. No such this exists, and Harasha claim about inflation control being in the New Zealand Constitution is a lie. Harasha is avoiding the main issue that printing money is the main cause of inflation at least for the last while.

Nish Tuesday, 13 September 2022 10:56 AM

You can never compare Central Bank in SL with other developed and well respected countries. After all, they are called developed countries for a reason. It is like sky and earth, in all aspects; the calibre of people working there, their skills, integrity and accountability. SL will never achieve that level in another thousand years even. Same with SL politicians

Natalie Fernando Tuesday, 13 September 2022 11:23 AM

DR. Harsha, you sound very different now. This is the best example how ugly politics is in SL. Sir you lost a great deal of respect from the educated population. You sound like a typical opposition MP now.

Sanjeeva Fernando Tuesday, 13 September 2022 01:36 PM

Harsha was part of the team that brought Arjuna Mahendran. Harsha has forgotten that they borrowed 12500 million dollars in International Sovereign Bonds during his time in power.

Rosh SUD Tuesday, 13 September 2022 02:29 PM

This man is more of a theoretician than a practical economist. There are similar talkers in blue-chip conglomerates who fail miserably in practical implementation, nevertheless practical champs who take on challenges in highly volatile situations and prove as winners. Harsha, you will never be a successful economist when it comes to challenges and implementation. Instead, you are a good lecturer.

Rona Tuesday, 13 September 2022 05:47 PM

Is Mr Harsha out of his mind? Give a blank check to people who are not so honest. History repeats itself.

Rienzie Wannithantri (Missouri) Tuesday, 13 September 2022 11:23 PM

Well done to the 90 % comments regarding Harak Kate "Harsha" His Phd ks only good for himself to talk. Hurray ! for the SL bold to analyse the "Pisu Dr.

“ The Lansi Burgher Gent “ Wednesday, 14 September 2022 03:01 PM

Astonished to read of his sentiments on preventing the CBSL from trading on the primary markets for T Bill auctions and allowing them to do the same on the secondary market. Very skewed in his thinking. A lot has changed, it seems. If they can raise funding locally, from local investors - why not? Why go and take out more doles, when you can raise a large portion of it to settle local debt and roll on? Surprised.

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CB independence doesn’t mean lack of accountability: Harsha

Comments - 14

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