Appointing A New Governor For The Central Bank!
By Hema Senanayake –June 19, 2016
Hema Senanayake
Why the appointment of the Governor of the Central Bank is so important? I kindly invite you to think about it for a little moment before you read this brief essay.
My enlightened view is that, if the country got a competent governor for the central bank, I do not care who is being elected to be the President or Prime Minister of the country when it comes to the issue of the economy and its growth. Why do I say so?
It is because, the governor of the central bank is the only man in our governmental system who can effectively change the total output (i.e. production) and who can create more sustainable employments than the entire cabinet could. Governor is the only single man who can effectively change the nation’s Current Account and Balance of Payment situation on which the stability of our domestic currency the rupee depends and in turn, upon having a stable rupee Foreign Direct Investments would increase. In fact the governor of the central bank is the man who can save the government politically. If economy fails, “good governance government” fails.
Perhaps you might think that Prime Minister Ranil Wickremesinghe has understood the critical importance of the role played by the Central Bank as he proposes that the central bank must be an independent institution. I am sorry, let me call the spade is spade. Administratively, any central bank can be made independent but theoretically and for practical reasons, no central bank can be made independent functionally if a taxation authority which is defined as a government which can collect taxes, does not support it.
The slogan for independent central bank was a catching idea promoted by central bankers prior to the Great Financial Crash of 2008. During this crash, the European Central Bank (ECB) was the only significantly large central bank which was not backed by a taxation authority directly. As a result European Union had to go after IMF in finding solutions for its member states and economies of some member states crashed significantly during the crisis. As far as I know ECB is now looking for some kind of arrangement to get the backing of all taxation authorities of EU. There is a clear technical reason (macroeconomic reason) as to why the central bank needs the backing of taxation authority, but I am not venturing into discuss this point in this brief essay. However, as at now there is no huge outcry for independent central banks, as far as I know even IMF is not interested in that slogan any more but our Prime Minister does. For a moment forget about it.
