CBSL chief joins Advocata monetary policy debate
COLOMBO: The Advocata Institute organized a Monetary Policy Roundtable in conjunction with the Central Bank of Sri Lanka (CBSL) and the New Zealand High Commission.
The event was attended by the Governor of the CBSL, Dr Nandalal Weerasinghe; the High Commissioner of New Zealand, Michael Appleton; the former Acting Governor of the Reserve Bank of New Zealand (RBNZ), Professor Grant Spencer (joining virtually); the Chairperson of the Advocata Institute, Mr Murtaza Jafferjee; CBSL officials; and a number of prominent economists.
The Advocata Roundtable was held at the Central Bank, and commenced with a presentation by Professor Spencer on the monetary reforms that the RBNZ underwent in the 1980s and the lessons that Sri Lanka can learn from them.
Between 1984 and 1993, New Zealand’s highly controlled economy underwent significant reforms and restructuring, including monetary and fiscal reform, financial deregulation, labour market deregulation and public sector reform.
The monetary policy reforms in particular were undertaken to ensure price stability (low and stable inflation).
The reforms included ensuring the independence of the Central Bank (with Treasury oversight but not control) for longer-term monetary stability, which allowed for bold reforms to be taken such as the floating of the New Zealand dollar, inflation-targeting measures, and financial market deregulation.
These reforms helped build out financial and money markets in the nation and occurred simultaneously with fiscal reforms – in particular, to reduce the government’s fiscal deficit – as there was a strong political will to properly sequence and carry out reform.
New Zealand now has one of the most open, vibrant and successful economies in the world, which benefits greatly from the efficiency, competitiveness and productivity gains achieved through, wide-ranging reforms in the 1980s and 1990s.
Speaking about the New Zealand experience, Prof. Spencer highlighted the difficulty of ensuring Central Bank independence if the government maintains a large fiscal deficit and the need for clear communication to the public about the need for reforms.
He also noted that maintaining stable inflation should take precedence over full employment – as it is the only way to ensure sustainable long-term employment.
The Roundtable was live-streamed by the Advocata Institute on Zoom and segments of it will be available on Advocata’s social media pages in the coming days.
Key Takeaways
● The Advocata Institute organized a roundtable on August 8th to specifically analyze monetary policy reforms and the lessons Sri Lanka can learn from New Zealand.
● The event was attended by the Governor of the Central Bank of Sri Lanka, the former Acting Governor of the Reserve Bank of New Zealand, members of the High Commission of New Zealand and eminent economists.
● The Government of New Zealand and the Reserve Bank of New Zealand undertook a series of far-reaching reforms between 1984-1993 throughout the economy.
● The reforms included floating the currency, removing exchange controls, financial deregulation and granting Central Bank independence.