Is printing money the last resort?

Public life has been disrupted, people's economic activities have been stopped, all due to the lockdown in most parts of our country following the COVID-19 pandemic.

People's income has decreased, resulting in a decrease in purchasing power, the flow of debt has decreased and so has the aggregate spending of the economy. The most notable phenomenon is the decline in transactions. Money loses its power when it's kept idle in hands.

On the other hand, perishable goods are being wasted due to the supply chain being disrupted. This results in the producer not getting the selling price and suffering from a loss. The problem is basically on both the supply and demand side of the product.

Bangladesh is one of the fastest growing economies in the world. Recently, The Economist ranked Bangladesh 9th in terms of economic strength out of 66 countries and termed Bangladesh's economy relatively safer than countries such as India, China and the United Arab Emirates.

The situation around the world is alarming and Bangladesh is feeling the heat as well. Around 90 percent of the total employment in Bangladesh is informal. The pandemic has left about 80 percent of Bangladesh's informal sector workers jobless.

In the United States alone, nearly ten million people have applied for unemployment benefits. The same is true for Europe. In this situation, developed countries such as USA, Australia, United Kingdom, Canada etc. have started printing money to deal with this alarming situation.

Following this trend in the developed world, many economists have suggested the government print money in Bangladesh as well. Nobel laureate Economist Abhijit Binayak Banerjee has also suggested printing money in this situation.

We should, however, keep it in mind that our way of life is different, and our mentality and mindset and social construct is different from USA or India. So, when we align ourselves with Western-style economics, there could be dangers lurking for us.

Quick printing money is not an option now

1. Bangladesh Bank has the opportunity to increase the supply of money in the market with policy concessions. It has already made arrangements to provide money by reducing the CRR and Repo rate  The CRR has been reduced by 1.5 per cent to 4 per cent in two phases. As a result, the banks have acquired the capacity to lend around Tk 19,000 crore.

The ADR limit has been increased from 2 per cent to 6 per cent (92 per cent for Islamic banks). As a result, banks will be able to lend to the market from the existing money of Tk. 20,000 crore (approx.).

Bangladesh Bank has a market supply of BDT 12 lakh 96 thousand 540 crore. Of this, people have only Taka 1 lakh 59 thousand crore in their hands. The rest of the money is deposited in Central Banks and commercial banks.

Moreover, the commercial banks have deposited BDT 3 lakh 13 thousand and 60 crore with the Central Bank till last January, when they needed to deposit 2 lakh 10 thousand 4 hundred 12 crore. There is an additional deposit of Taka 1 lakh 3 thousand crore. This money can be disbursed to commercial banks without any policy change.

Repo rate has been reduced by 0.5 percent to 5.25 percent. Banks will be able to take loans from the Central Bank at low interest rates, if required. There is an opportunity to supply a huge amount of money to the market by further relaxing these policies.

Apart from this, the Central Bank has set up several funds under which the banks will lend another Tk 22,000 crore.

The Central Bank has the opportunity to increase this fund further. If dividends are banned this year, banks will be able to lend at least Tk 5,000-6,000 crore. This increased liquidity in the economy gives us hope that even if the flow of money does not increase now, it will continue.

2. We do not know how long this transition will last. If this economic downturn turns into a  depression, taking into consideration the market situation, a decision can be taken later.

As soon as the government starts implementing the incentive package of around BDT 1 lakh crore, this financial crisis will start withering  because the flow of loans from banks and financial institutions will enter the economy, resulting in an increase of people's income.

Moreover, the government has taken a loan program of Tk 3,000 crore for low-income professionals, farmers and marginal and small traders without collateral, which will further add extra value.

Governmental financial assistance for the bottom of the pyramid people of society, loan package, and sale of food items at low prices for the lower middle class, purchase of paddy at a fair price by the government – with  these interventions in place, the flow of money will speed up the economy.

This will result in increase in aggregate spending, which will help to increase people's income, increase savings, increase investment, and increase spending again. It's a cycle.

3. In the developed world, a large part of the total domestic spending comes from debt. The situation in our country is not like that.

Most of the common people of the country are out of formal debt. As a result, the people of developed countries such as America are more fragile than the people of our country. They cannot run without government support, but our people can.

This mental conditioning has strengthened them. Moreover, if the businesses are opened following strict safety advisories, which is already happening, demand will be driven by income flow in the economy, the national spending will increase and liquidity in the economy will increase.

4. Charlie Thomas Manger, Vice Chairman of Berkshire Hathaway, warns that printing money in the American economy can even lead to a Venezuelan-like situation.

As a result of printing money in 2000, inflation in Venezuela reached 10,000 percent. The situation in our country may also be terrible if money is printed.

If the supply of money increases without increasing production/supply of goods, then the possibility of hyperinflation cannot be ruled out.

We should look at how long this situation will last. We must continue our efforts to raise funds from foreign donors and lenders.

5. Before printing money, the government should think about imposing wealth tax on the wealthy in society. Moreover, the government can put pressure on those who have a lot of illicit money in foreign banks, are big loan defaulters, and have smuggled a lot of money abroad at different times, to bring back the money in these days of national crisis.

There are many Bangladeshis living abroad who want to invest in the country but cannot, because of bureaucratic complications. The government may welcome their contribution .

If necessary, printing money can be the a last resort but before printing money, we should also think - if the value of money declines, we will lag behind in foreign trade.

We have the habit of following others but we should keep in mind that Bangladesh is not a bottomless basket anymore. Now we have the strength to think and make policies of our own. How long will we try to fit into the shoes of the West.

The author, a columnist and economics analyst, is Founder and CEO of FinPower Leadership International