Economist warns Gov’t practice of printing money dangerous

A respected economist agrees with the Democratic Labour Party (DLP) that the Government is using the Central Bank to print money, and he has warned that abusing the measure could spell danger for the economy.

Former head of the Department of Economics at The University of the West Indies, Cave Hill Campus, Professor Emeritus Michael Howard said DLP president Dr Ronnie Yearwood was on point in charging that by using the Central Bank of Barbados to purchase its Barbados Optional Savings Scheme (BOSS) bonds, Government was essentially printing money.

Dr Yearwood had said that as of November 2021, the Central Bank had purchased $120 million of the four-year bonds that offer an interest rate of five per cent per annum with the interest being paid in two half-yearly instalments.

In an interview with Barbados TODAY, Howard agreed with Yearwood’s assessment.

“You have to go back to the definition of printing money. Printing money is the Central Bank lending money to Government either by way of direct lending, like a loan, or by way of purchasing bonds, or treasury bills or debentures, or some other type of financial note… so Dr Yearwood is right in the sense that the Central Bank is monetising Government’s debt to get it out of trouble and that is akin to printing money.

“The Central Bank does that normally to help Government with housekeeping, such as paying people and that sort of thing. It is when it becomes excessive that it impacts on the balance of payments…. Governments have used the Central Bank to do that on many occasions when they want money and it has become abused,” Professor Howard contended.

He said that in many of the cases, it was unclear if Government ever repaid the money to the Central Bank.

“When the Central Bank lends money to Government all that the Governor does is to write a cheque for the amount of money and the money is created and sometimes the Governor of the Central Bank is not even repaid. You don’t even know,” the economist said.

He stressed that the danger in printing money is that “when you do that a lot, Government uses it and spends it and it finds its way into the balance of payments – that is, the use of the money goes to purchasing imports and it can run down your foreign reserves”.

“That is the particular danger of printing money. It becomes dangerous when Government uses it not as a help-out but as a normal course of financing its budget. Government can use Treasury bills, it can borrow from the public, it can borrow from banks, or you can borrow from other people, but when Government does it excessively it becomes a problem,” Professor Howard maintained.

Repeated efforts to reach Government’s Senior Economic Advisor Dr Kevin Greenidge and Minister in the Ministry of Finance Ryan Straughn for comment proved unsuccessful up to the time of publication.

(randybennett@barbadostoday.bb)