by Garvin Karunaratne

Our monetary economists of today have decided that printing money is to be stopped till the end of the year. The new Central Bank Act of 2023 is said to forbid money printing. Some foremost economists and the Central Bank of Sri Lanka are of the opinion that printing money causes inflation and should not be done.

I lived in Sri Lanka till 1973 and worked in senior Administrative Service positions from 1955 to 1973- some 17 years handling arduous development tasks all done with locally printed Rupees. In 1970, as a Deputy Director of the Small Industries Department, I actually handled foreign currency disbursement to all small industrialists in the country. Thus I speak with firm authority, through sheer experience -not research knowledge picked up from the internet or research, following ideas of elite professors or guided by utterances from foreign monetary institutions

I can make a firm statement that all that while from 1948, when we became a sovereign country to the end of 1977, when we bowed to the IMF, the entire economy of the country was run with printed money. There is no two words about this statement. In detail- all officers working in the private as well as the public sector, all work in all government departments- constructing major irrigation tanks, running the entire administrative network to achieve self sufficiency in paddy(rice)- all that was done with locally printed currency. I happened to have served as a kingpin- first as an Assistant Commissioner of Marketing -buying and selling vegetables, fruits and paddy, in charge of the vegetable and fruit purchasing unit at Tripoli Market Colombo, covering activities in entire Sri Lanka for a full year and later, in charge of the largest rice mills, later as Senior Assistant Commissioner of Agrarian Services in charge of handling agricultural extension- granting loans and issuing fertilizer for farmers, building irrigation tanks large godowns and all that was done with locally printed money. As the Government Agent at Matara in 1971 to 1973 the entire work of all the departments in the District was done with locally printed money. In short all development programmes upto 1977 was entirely done with local Rupees.

Printed Currency was handled with the greatest care. For instance when I served as the Additional Government Agent at Kegalla in 1968 and 1969 the Rural Development Department received a small allocation- around two hundred thousand rupees to be spent on rural infrastructure projects. Every district did also get a similar amount and it so happened that many districts could not spend that fully and the unspent money had to be returned to the Department of Rural Development. I saw to it that the full allocation to my District was spent and went further. The Director of Rural Development Mr Ratnavira was a close friend of mine and I got him to find the unspent allocation of other Districts. On the last day for the closure of accounts I would turn up at his office in Colombo at nine in the morning, and get issued a cheque- being the amount of unspent money in many other districts. I would dash back to Kegalla and enter that cheque into my books and also write out cheques paying Rural Development Societies for rural work in my district for work to get done within weeks. and would hold the cheques in my safe for a month and issue them when the work was complete. We were that careful in handling rupees.

Look at the Annual Reports of the Central Banks of Sri Lanka for early years and you will find the statistics of the amount of currency notes that were printed in each year.

We were extremely careful in spending. Any new posts were created only after the Treasury agreed to bear the cost of that post. The Treasury controlled every cent that was spent.

The Treasury was in firm control and the Rupee was actually a guarded property that was taken care of. There were no Rupee guzzling endless commissions and increasing employees.

The entire country was run with locally printed money. There is no two words about it.

Now we come to the foreign funds that came in and how that was collected very carefully and used. I hold experience in this too.

As a DeputyDirector of Small Industries I was in charge of small industries in the private sector. The Department of Small Industries received an allocation of foreign currency and I was in charge of allocating foreign exchange to private industries. Every private industrialist in the country if they requited any machinery or any item from abroad for their manufacture had to come to our department and request an allocation. They were requested to state what item they want from abroad and what they would do with it. I had a staff of over twenty inspectors well versed in industries. . The Inspectors would submit their report to me after an inspection and I would n make an allocation for the industrialist to import small machinery or import a particular item that was required for what they made. I was extremely strict, but would ensure that every applicant received a fair allocation. At times I would inspect the industries.

We were very strict. I would quote an actual instance. Once the Ministry summoned me and told me that an industrialist was found with machinery recently imported without Ministry knowledge and wanted me to find out whether the Small Industries Department had authorized that import. I checked our documents for a few years and found that an Assistant Director had authorised it. When I questioned that officer he said that the Minister for Industries Mr W.Dahanayale had summoned him and instructed him to grant an allocation to a company and he carried out that instruction. I recorded the statement of Mr Dahanayake who said that he had never given such an instruction. That Assistant Director was given an immediate dismissal.

Over to my work in Bangladesh as the Commonwealth Fund Advisor to the Ministry of Labour and Manpower. Bangladesh, a country like ours, three times our size, it was entirely run with local Taka that was printed. In fact I was instructed by the Hon Minister for Labour and Manpower to design and establish a Youth Self Employment Programme which I did establish and train members of the elite Bangladesh Civil Service to continue it and they did continue it to today. It is today without any par the largest and most successful employment creation programme the world has known which has guided over three million youths to employment. That entire programme was created with locally printed currency- not a single dollar was used. As a Consultant I was in touch with other Departments too and all work everywhere was done with the local currency. There is no two words about that.

I have happened to travel widely and I have visited Mexico, Canada, Thailand, India, Bangladesh, Vietnam, Cambodia, Nepal, Turkey, Myanmar and in all these countries I travelled everywhere, by car and found all activities done with locally printed currencies. All local shops and hotel charges are all done in local currency. When one books into a hotel, once a foreign passport is submitted they insist on payment in dollars or pounds sterling.

Now one comes as to how foreign exchange that came into the country was handled before we adopted neoliberal economics at the end of 1977. .

Any foreign currency that came into the country- being accepted at a bank from tourists or brought into the country through exports was carefully collected by the Central Bank and thereafter the Central Bank would make allocations to the various Departments for the purchase of machinery or for essential imports. Every car importing agent was given a small allocation. In 1957 when I purchased a new Peugeot, I had to wait two months. Earlier when a relative of mine purchased an Austin in about 1952, he had to buy a new car off a person who had paid and had it reserved and was waiting for the import. That happened during the days when our Government constructed the Gal Oya Development Project building the largest tank, three times the size of Prakrama Samudra and builtt up a number of industries all done by Morrisor Knudson, the American firm that constructed the famous Hoover Dam, all paid by foreign funds we held. We were that careful even when we had dollars.

Our country was extremely careful – there were no private currency dealers and every one including tourists had to go to a bank. In my travels in countries like India, Nepal, Thailand etc. I have always had to go to banks to cash dollars or pounds . Our Governments throughout were also extremely careful in allocating foreign funds. If anyone wanted to go even on a pilgrimage to Buddhgaya one had to make an application to the Central Bank and get an allocation, That was the task of the Controller of Exchange of the Central Bank. No one was given foreign exchange for travel abroad or for foreign studies. In about 1958, Sri Lanka allocated foreign exchange for Sunetra and Chandrika Bandaranaike for foreign study. I had the opportunity to question the Prime Minister Mr Dudley Senanayake why he did allow this. He replied that that happened to be the only request made to him by an earlier Prime Minister and he felt like giving it. When I marched abroad for studies in 1973 I was not given a single penny.

In short the entire administration and all development expenses, everything was done with locally printed money. All our all our foreign expenses were met with the foreign funds that were carefully collected.

Thus the theory that some monetary economists of ours hold that Printing Money causes inflation and should not be done is sheer nonsense. Our new Central Bank Act I am told forbids printing currency. The mandarins in the Central Bank as well as everyone in Parliament are unaware that we ran the entire country with printed rupees.

Today, every country is being run with printed money. The idea of printed money causing inflation is nonsense.

If anyone is of the opinion that Printing Money should not be done it is geared to making our country to raise foreign loans for all local expenses and become further indebted. This is a definite statement that I make.

Garvin Karunaratne,

former GA Matara and also the Commonwealth Fund Advisor to the Government of Bangladesh 1982-1984.

garvin_karunaratne@hotmail.com