Central Bank needs to protect its independence and preserve its accountability to the nation former Deputy Governor of the Central Bank of Sri Lanka, Dr. W.A. Wijewardena said.

“We should be accountable to the nation and that is what we have to maintain. In modern Central Banks this has been ensured by having special provisions of disclosure, special provisions of transparency, special provisions of explaining what the central bank is doing at various public bodies and so-forth.,” Dr. Wijewardena said during a public lecture on “Central Bank Independence”.

However, with new Monetary Act which is being proposed by the Central Bank of Sri Lanka Dr. Wijewardena hopes that the accountability function would be taken care of.

“Most of the Banks ; Bank of Canada, Reserve Bank of Australia and New Zealand , which have gone into inflation targeting today , which the Central Bank of Sri Lanka is planning to implement , they have to explain why they go for inflation targeting to a parliamentary committee and the benefit for society of maintaining inflation at a lower level. At the end of the year we have to again explain why they have failed. So that has to be maintained by Central bank of Sri Lanka. And with the new monetary act which is being proposed by the Central Bank of Sri Lanka I hope the accountability function would be taken care of.”

“If the central bank users its monetary policy recklessly in order to satisfy the reckless political leaders at the end it is we who suffer because the money that we have in our pocket will become worthless and we will lose everything we have,” he added.

Speaking further Dr. Wijewardena said that Central Bankers should endure the pressure coming from political authorities but, by the experience in the past, writers on Central Banking have taken liberty to classify the Central Bankers by the behavior of a selected set of birds and the list is increasing with the emergence of new proof regarding the behavior of Central Bankers.

“It first started with doves – those who believe in accommodative monetary policy – and hawks – those who are conservative and in the opposite. But then, hawks and doves did not remain being hawkish and dovish forever; there was a change in attitude moving from one end to another. It led to name vacillating Central Bankers as ‘swingers’ who would at one point be in one end of the swing and at another, in the other end. They have now been joined by pigeons, who are peacemakers,” Dr. Wijewardena said.

However, “We know that monetary hawks cannot survive for long” Dr. Wijewardena noted. Most of the Central Bank governors have to lose their jobs because they have defied the request and pressure coming from the government “In that case it is essential to have both conservative hawks as well as peacemaking pigeons to maintain Central Banks continuity,” he added.

Dr. Wijewardena further emphasized the importance of maintaining a cordial relationship with the government.

“Central Banks should be independent but it should have cordial relationship with the government. Because we know these are two main branches at state. Both have been created by the society, by the nation to aid the people. Hence, they have to respect each other, at the same period they have to appreciate each other. It is just like the relationship between the “husband and wife”. They have to work together for the welfare of the nation” he said.