June 10, 2007 (LBO) – A popular folk story talks of a villager and a chance meeting of a demon in the forest and using his craftiness to get the demon to work for him.

Therefore, the use of inflation as a measure for funding government budgets is not an advisable strategy for any government.

Using inflation to fund budgets is just like getting a demon to work for you.

W A Wijewardene is Deputy Governor of the Central Bank of Sri Lanka in charge of monetary policy Understandably, the demon being an untiring person proves to be a marvellous worker.

His contribution to the villager far exceeds that of even a thousand workers. According to the story, everything is well and good as long as the villager is able to keep the demon under his control. But, on the day the villager loses his grip over the demon, it would set upon the villager and devour him.

Short Run

So, though the villager would have a jolly-good life in the short run, he runs the great risk of losing everything, including his life, in the long run.

Governments’ use of inflation as a tax to force-mobilize resources for funding government projects has be

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