Aug 29, 2008 (LBO) – A central bank should not relax monetary policy (print more money) to increase employment, or finance wars and subsidies, because inflation, which is worse than terrorism, would be the result, a top Sri Lankan economist said.
Economic analysts have pointed out that inflation and foreign exchange shortages became a problem in Sri Lanka after the creation of the central bank, which then led to the progressive closure of the economy.
Except for the two and a half decades of a closed economy in the life of the central bank, up to 1977, Sri Lanka has had an open trading economy for thousands of years.
Wijewardene, whom his fellow deputy governor Ranee Jayamaha introduced to the audience as a ‘living repository of knowledge’ within the central bank, says to wage wars against terrorism, real resources are needed.
He says when the sovereignty of a country has been challenged; economists accept that a democratically elected government has to re-establish law and order.
“For governments which are already constrained by a shortage of resources, allocating resources for fighting terrorism means foregoing some other useful activity for which such resources could have been utilised,” Wijewa