Central banks admits printing money for loan to states to pay salaries

0
151

Two opposing forces acting on the government’s public finance have led to the current unfortunate, but inevitable circumstance.

Earnings have fallen and continue to fall; around the opposite side of this finance equation, the government’s demands have widened or increased and continue to do so.

This is a fundamental issue. The decline in revenue and the increasing demand for government derive from the nature or fundamentals of our economy and polity at the moment.

And since they are fundamental issues, they must be addressed by tackling the causes and never by fixing the symptoms or consequences.

The shortage created with this has resulted in the ugly situation in which it’s been said that the government needed to”print money”.

Sure, deficits must be financed, 1 way or another, and also”printing money is among the probable strategies to do so.

But all central banks print money, and also our Naira has sometimes been printed, therefore why the uproar now about printing money?

The importance of the concern lies in the framework and the imagery it evokes. As a frame, “printing money” is a somewhat unsavory representation of a financial action (borrowing) by the country that the public all over the world considers escapist or rascally.

When governments are reported to have resorted to printing money, the people usually have the belief that the authorities are unmindful of the possible effects of such an action.

Read Also:  CBN directs banks to comply with SWIFT universal payment confirmations

It also provides the impression of a preference by the government for”cheap” or cost less money, but one that is really laden with harmful possibilities.

It’s a frame that gives the government’s borrowing a dubious or sinister coloration. It gives the impression of a government or its officials directing personnel of the central bank into a certain room filled with printing materials.

In few hours the group emerges from another doorway beaming with smiles; the deed is completed and, here are packages of currency notes where the authorities can begin to spend.

This way, printing cash gives the impression of coverage rascality that can effectively undermine the basic principles of public finance.

How does the government finance its huge bills that pay motley of items? And in our present circumstance, the government is prosecuting various wars throughout the nation, all of which involve paying.

It is not a secret that the government’s funds are in shortage. It is likewise clear that the shortage was exacerbated by the impact of COVID-19, which has triumphed in beaming focus on the exposed nature of the Nigerian economy.

In January 2021, the federal government recorded a deficit of N485.51 billion, due to a mix of variables. One, the price of oil fell, which means that revenue accruing from oil has dropped.

Additionally, although the catch-all term of non-oil earnings” currently accounts for about 54.6percent of overall revenue in the January period, its ascendancy as a revenue source is to lift the nation out of its fiscal doldrums.

The key options available to a government for funding its own deficits are to raise taxes, borrow in the markets (locally and externally), and needless to say borrow from the central bank, which can be known by its framework, printing money.

Raising taxes could mean either of two things. It involves increasing the tax rates (as the government has performed with all the VAT rates) and embarking on a drive to widen the tax net.

The first option has its own drawbacks and therefore cannot be pursued for long without dire consequences. The government cannot arbitrarily increase tax differently, the market runs the risk of having a financial drag.

This really is a phenomenon described by public finance specialists as”when the economy wants to proceed, something would be drawing it.

In theory and in fact, it portrays a situation in which the government takes a lot from business in the form of taxes which not enough is left for reinvestment or plow back to help raise the economy and set it on the course of growth.

Another alternative available to the government to finance a shortage would be to borrow. Naturally, we know that our government has been doing a great deal of borrowing both locally and from foreign markets. Both have their drawbacks, being debts.

In the case of national borrowing, the issue is that government crowds out the private industry by competing with businesses for funds that are available.

When authorities offer higher interest rates than the private industry can cover, they”crowd out the private sector, which actually should be the engine of growth”.

The third option, often the last resort, is what is often referred to as”printing money” The premise of this is the simple fact that the central bank is your banker to the government.

How independent is the central bank? How much impact can the government have on the decisions of the lender?

These concerns are not peculiar to Nigeria but apply universally. Again, they reflect the fact the relationship between the lender and the government of the day is of interest to every member of the nation.

The key issue with printing cash is its own unsustainable nature. It is unsustainable because regular resort to it by the government has harmful impacts on the economy.

Its biggest drawback is that the inflationary effect, which ultimately undermines the strength of their money and the welfare of all citizens.

It is an overdraft, short-term lodging for an economic agent whose current income has fallen short of its expenditure.

Thus, it turns into an abnormality if a person who came in for a temporary accommodation now settles for a permanent abode.

Frequent recourse to borrowing from the central bank is, therefore, bound to be counterproductive.

Already the stress on the financial system is becoming visible. The amount represents deficit financing by the central bank to the government through means and ways.

LEAVE A REPLY

Please enter your comment!
Please enter your name here