High inflation impoverished the nation - Wijewardene

“The average prices of consumer products are on the increase at an average rate of 11 percent,” former Deputy Governor Central Bank, W. A Wijewardene said a forum in Colombo.
“Sri Lanka’s Central Bank has created an average inflation of 11. percent and should take the blame for impoverishing the people. Being a part of the Central Bank, we have to take the blame for reducing the peoples’ real wealth.
“The value of currency has been reduced by 11 percent. This means, the value Rs. 100 during 1950, has a value less than even one cent today.”
Sri Lanka’s Central Bank was created in 1950, abolishing a Currency Board arrangement that had kept inflation low, and the exchange rate fixed from the previous century, under the so-called ‘Sterling Area’ built by the British.
A Currency Board operates under a simple rule. It creates domestic money according to foreign exchange inflows and outflows. It cannot print money to manipulate interest rates or finance the government, by printing money to buy Treasury bills like a Central Bank.
Wijewardene was addressing members of the Rotary Club of Colombo Central. At the time he retired last year, he held the post of Deputy Governor in-charge of monetary policy.
Last year Sri Lanka’s inflation went down to a single digit.
“But when we say a country has achieved price stability, it has to be maintained for several years, at least 10 years,” Wijewardene pointed out.
A Currency Board also allows the free movement of capital. Financial centres like Hong Kong and Singapore have a mechanism similar to a Currency Board, while Sri Lanka progressively closed its economy, with tight exchange controls followed by trade controls.
Wijewardene said, N U Jayewardene, a former exchange controller who became Central Bank’s Governor, had later said that making exchange controls a permanent law, was the biggest mistake he made in his life.
Many Currency Boards collapsed soon after the war, as countries joined the Bretton Woods agreement, due to loose British monetary policy which made trade with the so-called ‘dollar area’ difficult.