Printing Money: There will be crisis if not used properly


A good number of central banks across the globe have started printing money to get a turnaround from the ongoing financial recession.

For instance, the US’s central bank, the Federal Reserve, has already started printing money to implement the government stimulus packages worth $3 trillion, a move that has boosted production and generated employment.

The Bangladesh Bank (BB) has taken the same measure to revive the economy as it has already decided to inject about Tk 50,000 crore in the form of different refinance schemes.

Besides, Finance Minister AHM Mustafa Kamal yesterday has set a borrowing target of Tk 84,980 crore from the banking sources.

The government traditionally borrows a major portion of its target from banks. But it would be tricky for banks to provide this service as they are now going through a cash crunch of their own due to the economic fallout stemming from the ongoing pandemic.

This mean, the government will have to knock at the doors of the central bank. The Bangladesh Bank will have to oblige, but by printing money — a move that can go on to pose stability risks.

In fact, the government is already heavily relying on the central bank’s monetization power.

Between July last year and May this year, the government took out a record Tk 64,296 crore from the banking sources and 49.56 percent of the funds were footed by the BB.

In fiscal 2018-19, some Tk 26,446 crore was borrowed by the government, where the central bank gave out Tk 10,333 crore.

“Printing money is not a matter of concern at this moment given the current economic state of affairs,” said Ahsan H Mansur, executive director of the Policy Research Institute.

There is no risk of inflationary pressure right now as the aggregate demand has slumped.

But the printed money, generally known as reserve money or base money, must be used for productive purposes or else it would give rise to stagflation — a scenario of high inflation and low GDP growth.

So Kamal needs to be mindful of this consequence.

He suggested the government should implement the labour-intensive projects such as building highway and bridges on a priority basis under its annual development programmes such that jobs are generated for the marginal people — a move the US resorted to to get out of the Great Depression.

The authority concerned should think about deferring the construction works of the less labour-intensive projects like Rooppur Nuclear Power Plant and Padma Bridge.

The government will have to check both corruption and sluggishness for implementation of projects under the ADP or else the printed money will create inflationary pressure.

Besides, the government should mobilise foreign loans and grants from donor agencies and multilateral lenders in the days ahead to offset the pressure stemming from monetisation, said Mansur, also a former economist of the International Monetary Fund.

The government will set Tk 80,017 crore in foreign loans and grants to manage its deficit financing.

It is set to receive about $1.5 billion this fiscal year from three organisations: the World Bank, the IMF and the Asian Development Bank.

But there is a scope to bag about $2 billion to $3 billion in soft loans from the IMF if the government reforms the financial sector.

Kamal also relaxed the rule to whiten the black money hoping it would give a boost to investment.

He proposed to whiten the black money if the black money holders invest the amount in residential buildings by paying a tax of 10 percent on the amount invested, which for regular taxpayers is between 10 and 30 percent.

They will get the same facility if the black money is invested in the capital market for at least three years, a privilege not afforded as part of the previous amnesty package for unauthorised money holders.

But the black money-holders will not respond to the relaxation considering the previous instances, said Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue.

Besides, this will create a moral hazard and put off honest taxpayers from compliance.





Source link

Please follow and like us:

Leave a Reply

Your email address will not be published. Required fields are marked *

Wordpress Social Share Plugin powered by Ultimatelysocial
Twitter
Pinterest
LinkedIn
Share