Sri Lankan economist Umesh Moramudali says the recent rise in the money supply is mainly from an increase in bank lending (giving more loans) as interest rates fell, and not from the Central Bank creating new money.

Issuing a 05-point explanation in a statement on social media, Moramudali responded to recent claims that the Central Bank had printed Rs 1.2 trillion last year. 

Refuting the claims, economist Umesh Moramudali clarified that the Central Bank had not printed any new money.

Following is the 05-point clarification issued by the economist;

1) What does “money printing” actually mean?

In economics, “money printing” usually refers to the Central Bank creating new money that didn’t exist in the banking system—typically by buying Treasury bills/bonds directly and crediting the government’s account. That injects fresh money into circulation.

2) Did this happen last year?

No. Under the Central Bank of Sri Lanka Act, 2023, the Central Bank cannot directly finance the government (the Central Bank cannot give money to the government directly) by purchasing Treasury bills or bonds in the way it did in earlier years. So the recent increase in money in circulation did not come from new Central Bank money.

3) Then why did the money supply go up?

Because interest rates fell, businesses and households took out more loans. This expands broad money (M2b) using funds already inside the banking system. It’s normal in a recovery and not the same as the Central Bank printing new money.

4) How is this different from the 2020–2022 period?

During the pandemic and crisis years (including the Gotabaya Rajapaksa period), the Central Bank did buy government securities, which added new money to the system. That is what economists call money printing.

5) Is today’s increase bad?

Not inherently. Credit-led growth—when lending picks up as rates fall—can support businesses and jobs. It only becomes risky if credit expands too fast relative to the economy.

In conclusion,  economist Umesh Moramudali said claims that the CBSL printed Rs 1.2 trillion last year are incorrect. 

He added that the recent rise in money supply reflects higher lending due to more loans at lower interest rates, and not fresh money created by the Central Bank. (Newswire)

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The government has refuted allegations of printing money and obtaining new loans after being elected to power.

Cabinet Spokesman Minister Vijitha Herath confirmed that the government has not taken any fresh loans from any country or organization. 

Providing clarification on allegations about loans, he said that the Central Bank of Sri Lanka has a process of renewing expiring treasury bills and bonds, which was a standard process.

He pointed out that the government has only been obtaining money by adhering to the existing process of the Central Bank.

On allegations concerning the printing of money, Minister Vijitha Herath said the government had not printed any money and was not in a position to do so. 

The Government Spokesman explained that the Finance Minister’s approval is required to print new currency notes and the President, who is the current Finance Minister, has not granted his signature in this regard.

Pointing out that such newly printed currency would require the current President’s signature on the new note, he questioned if any new currency notes bearing the signature of President Anura Kumara Dissanayake have been found in the local market. 

Minister Vijitha Herath further requested the public not to fall victim to such false information. (Newswire)

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