Dec 19, 2010 (LBO) – Sri Lanka has good growth prospects if deficit spending can be reduced allowing the economy to be stable, and can also expect more financing from World Bank as the island emerges from a conflict, an official said. The US Federal Reserve devalued its currency against gold in 1933 setting the stage to depreciate the currency and the steal the real wealth of the people without openly taxing them to finance ‘welfare states’.
Under the Bretton Woods system of unstable pegs, other countries were able to depreciate faster than the US (which was the only country nominally tied to gold) and create higher levels of inflation, foreign exchange shortages and deficit spend to build large governments.
Sri Lanka got the ability to deficit spend, print money and create high levels of inflation and depreciate the currency after a central bank was created in 1950 ending a currency board arrangement that has kept the economy stable under British rule.
Sri Lanka’s exchange rate was fixed from 1885 until 1950, but under the Bretton Woods system of dollar pegs, exchange controls were imposed within two years and many shackles were placed on peoples’ freedom to move capital and trade with other countries.
After the Br