May 22, 2007 (LBO) – Sri Lanka’s Central Bank will diligently pursue its aim of economic and price stability and not finance the budget deficit with printed money, Governor Nivard Cabraal said. Quoting former Federal Reserve Bank Chairman Paul Volcker, he said the “truly unique power of a central bank is the power to create money and ultimately the power to create is also the power to destroy”.
“Designers of central banks have well recognized this power and the challenge that this power proposes,” Cabraal told a regional workshop of central bankers in Colombo Tuesday.
“They have ensured that this power be exercised diligently by assigning the responsibility of ensuring price stability to the central bank.”
Printing for Deficits
He said some of the oldest central banks in Sweden and later in England were created to finance wars.
Even as lately as 1940’s the British Chancellor of the Exchequer had described the Bank of England as ‘his bank’.
“I wonder what would happen today if the ministers of finance were to describe their respective central banks as their banks,” Cabraal said.
“The media would have plenty to say.”
“Today it is taboo for most