Growth in printed money slumps to Rs.47bn this year from Rs.341bn in 2021

• Money in circulation has also come down sharply to Rs.21bn in 2022 over Rs.170bn in 2021

The annual comparison made on the printed money stock and thereby the money in circulation over the last three years showed that it had increased the least in 2022 clearly reflecting how the ultra tight monetary policy had helped taming the unrestrained expansion in the money supply seen in the two years of 
the pandemic. 

Speaking last week, the Central Bank Governor Dr. Nandalal Weerasinghe pushed back on the comparisons and claims made by certain factions on the size of the printed money stock using only the Treasury bill holdings by the Central Bank as he said it doesn’t provide an accurate interpretation.

Too often some sections of the media and analysts interpret the amount of money printed by the Central Bank looking at the daily changes in the Central Bank’s holdings of the government securities. 
Instead Dr. Weerasinghe said what accurately reflects the stock of printed money is the changes in the reserve money stock of the economy, a technical term used for printed money in Central Bank parlance, of which the Treasury bill holdings are only one component.

The expansions or the contractions in the reserve money also happen with the direction of the interest rates where the higher rates draw money back into the Central Bank and vice-versa. Besides, the purchases and sales of foreign currency also affect the direction of the reserve money.  
He showed that this reserve money stock grew by only Rs.47 billion in the year so far compared to Rs.31 billion in 2020, which rose sharply to Rs.341 billion in 2021.

Excessive money printing has often been cited as the leading reason for the current economic meltdown, firing runaway inflation up to 70 percent and causing the record deficit in the balance of payment in 2021.  While the inflation pressures were building up from the second quarter of 2021, predominantly caused by the global commodities price boom and the disruptions to both global and local supply chains from the virus flare-ups, the main underlying reason behind the current bout of runaway inflation was the floating of the rupee, which ended up shedding 80 percent of its value in matter of couple of months. 

The acute commodities shortages and the higher taxes later contributed to further price pressures which have now been briefly arrested as a result of the tighter monetary and fiscal policies introduced in April. However, there are certain factions which attempts to assign the full blame to the current crisis on printed money, completely ignoring the sharp supply side crunches coming from the pandemic disruptions and thereafter by the Russia’s war against Ukraine, which sent global energy and food prices through the roof. Meanwhile, the growth in the money supply measured using broad money or M2b has also decelerated to 14.9 percent on a year-on-year basis in September from 18.2 percent growth a year ago. 

The money in circulation in absolute terms too has come down sharply in 2022 to Rs.21 billion from Rs.156 billion in 2020 and Rs.170 billion in 2021.