British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
Today, I am treating as Wednesday, given I wrote an extended treatment of the Australian government’s fiscal statement yesterday and I reserve Wednesday’s for other writing commitments. So just a few things today but including a really interesting piece of news. Some music to follow for those who seem to like what I come up with on Wednesdays. But the interesting snippet is from a tiny island in the middle of the Indian Ocean that might just be showing the world how central banks and treasuries should interact.
On May 16, 2020, the Government Gazette of Mauritius No. 57 notified us of a new piece of legislation that would go before the parliament in that nation.
THE COVID-19 (MISCELLANEOUS PROVISIONS) ACT 2020 – proposed amendments to 57 existing pieces of legislation, one of them the – Bank of Mauritius Act 2004 – which governs the legislative fiat of the nation’s central bank.
The amendment pertained to Section 6 of the Act, which governs the “Powers of Bank”, delineating what the central bank can and cannot do.
This document – Legislation – published by the Bank of Mauritius provides the essential background to the way the banking sector is regulated in Mauritius.
The amendments included a change to 6 sub-section (1) and involved the insertion “after paragraph (o), the following new paragraph”:
(oa) on account of the Covid-19 virus having a negative impact on the economy of Mauritius, grant such amount to Government as the Board may approve to assist it in its fiscal measures to stabilise the economy of Mauritius;
The Second Reading of the Bill in the Parliament provided some wonderful snippets of political life in Mauritius.
The – Hansard, Friday, 15 May 2020 – documents the proceedings.
The official conversation moves between French, English and Mauritian Creole.
The initial exchange between the then Leader of the Opposition (Dr Arvin Boolell) and the Minister for Finance (Dr Renganaden Padayach), the latter being an ex-senior central bank official, were quite amusing.
The Minister was questioned about Mauritius being placed on the EU blacklist for being a “high-risk third country with strategic deficiencies in its Anti Money-Laundering and Counter Financing Terrorism (“AML/CFT”) regime” (Source).
In response to one answer (you can read the Hansard), the then Opposition leader retorted:
You are leaning so much on your technicians, hon. Minister of Finance. I do not know whether you know of the story, but let me remind you. Do you recall the story of a baboon falling off from a high perch on its buttock by leaning too much on his officers? …
And more on that.
At one point the Minister responded to a question about whether the government would intervene on the management of foreign reserves:
… la politique monétaire, je le répète, n’est pas du domaine de la politique fiscale. Ce n’est pas du domaine du gouvernement. C’est pour ça qu’on dit que la Banque de Maurice est indépendante. La Banque de Maurice a à voir la politique monétaire, la politique des taux de change. C’est à eux de décider. Ils ont une mission, je l’ai dit et je le répète, savoir jouer à l’équilibre, savoir faire l’arbitrage entre la stabilité des prix et la soutenabilité du développement économique d’un pays, et c’est cela leur mission. Ce n’est pas leur mission de voir et d’accumuler que des réserves, c’est aussi de voir quel est l’impact sur l’inflation et aussi sur le développement économique.
Which translates in short hand to the usual foible: the central bank is independent and does not answer to the government and has a mission to keep inflation in check so it doesn’t harm economic development.
The former President of Mauritius – Cassam Uteem – noted at the end of this introductory debate, after the Minister had provided his set-piece mantra spiel about central bank independence that “The hon. Minister of Finance is going on about the independence of the Bank of Mauritius and he is saying again that it is the Bank of Mauritius which requested to be given the power to amend the law so that it can facilitate economic development …”
Which was an attempt to highlight the obvious interdependency between the bank and the treasury.
They then proceeded to discuss the COVID-19 (Miscellaneous Provisions) Bill (No. 1 of 2020).
Je commence mon examen du COVID-19 Bill par les mesures financières et économiques proposées dans le COVID-19 Bill, mesures que nous considérons très dangereuses et à courte vue.
Les amendements au Bank of Mauritius Act tuent la banque de Maurice. Il n’y aura plus de Banque de Maurice indépendante digne de ce nom. La Banque de Maurice devient une simple planche à billets pour financer sans limite le gouvernement lui-même et même pour investir dans des compagnies privées. Et, pour ce faire, la Banque de Maurice pourra puiser dans les réserves en devises étrangères du pays et dans le Special Reserve Fund de la banque.
Les amendements au Public Debt Management Act éliminent toute limite à l’endettement du pays en deleting complètement, purement et simplement la section 7 du Public Debt Management Act et élimine aussi du calcul de la dette publique toute garantie donnée par le gouvernement. Les amendements au Finance and Audit Act pompent de 3,5 milliards à 15 milliards les avances entre guillemets, parce que ce ne seront pas des avances, et soi-disant les avances sont portées donc à 15 milliards, les avances qui peuvent être faites par le gouvernement à partir du Consolidated Fund et qui vont aller dans des special funds et échapper ainsi au calcul du déficit budgétaire et à tout contrôle par le Parlement.
So, the Socialist Left doing what they do best – reinforce all the deficit and debt myths that the conservative, neo-liberals use to perpetuate austerity and elevated levels of unemployment.
The claims that the central bank was just being pushed into ‘printing money’ to fund fiscal excess are what Monetarists say, not the Socialist Left. But we all know I am mistaken in that hope.
The Prime Minister pointed out in the debate that what was being proposed with respect to the amendments to the Bank of Mauritius Act were in line with practice in:
Many countries, including the United States of America, United Kingdom, India, Japan, Seychelles and South Africa have also resorted to similar measures to support the recovery of their economy from the Covid-19 shock.
He pointed out that the former Prime Minister (Paul Bérenger) cries about central bank independence were a bit rich because when he was Minister for Finance in 2002, he forced the Bank of Mauritius to repay to the government a higher amount than their profits in that year. The same thing happened in 2003.
He also pointed out that the (now) Opposition leader (Xavier-Luc Duval) was hypocritical because in 2011, when he was Minister for Finance, he oversaw one billion Rs (the currency) being “transferred from the Special Reserve Fund of the Bank of Mauritius to credit the Accountant General’s account” but now cries about central bank independence.
Fast track to May 7, 2021.
The Bank of Mauritius issued a statement – PUBLIC NOTICE: TREATMENT OF THE ONE-OFF EXCEPTIONAL CONTRIBUTION OF RS60 BILLION TO GOVERNMENT.
The Bank has given RS60 billion (Mauritian Rupees) – equal to $US1,487,902,800 – to the Mauritian government to assist the “fiscal measures to stabilise the economy in the wake of the negative impacts of Covid-19.”
The gift is made possible under the amended Section 6(1)(oa) of the Bank of Mauritius Act 2004.
The important part of this initiative though is how the Bank seeks to account for the transfer to the Ministry of Finance.
As the Bank approaches its financial year end, in the interest of transparency, the Bank informs the public that the treatment of the Rs60 billion in its books is as follows:
i. An amount of Rs32 billion has been written off from the Special Reserve Fund;
ii. The remaining balance of Rs28 billion is being treated as advance against future profits distributable to Government.
So, it is just writing off more than half of the funds transferred.
And, the IMF has been consulted and has approved the write-off.
No debt is involved.
Key strokes into computer adjusting numbers up and down.
Go Bank of Mauritius.
The Bank of Mauritius is also setting up the “Mauritius Investment Corporation Ltd (MIC) as a Special Purpose Vehicle” to “mitigate contagion of the ongoing economic downturn to the banking sector, thus limiting macro-economic and financial risks.”
The MIC will fund endangered “economic operators”.
Let’s hope other central banks follow suit.
Please read my blog post – Central banks should just write off all their government debt holdings (February 15, 2021) – for more discussion.
This Vice article (May 12, 2021) – Anti-Maskers Ready to Start Masking-to Protect Themselves From the Vaccinated – made me laugh.
The anti-vaxxers and anti-mask gang have started to wear masks and socially distance because their stupid theories have led them to believe that the vaccinated population are now “shedding certain proteins onto the unvaccinated who will then suffer adverse effects. The main worry is the “shedding” will cause irregular menstruation, infertility, and miscarriages.”
Apparently, they believe COVID-19 is a conspiracy to “depopulate the world, and the vaccine is what will cull the masses”.
So what is their response?
To start wearing masks and maintain social distance.
And these people can vote.
This is what I have been listening to while working this morning.
The reason I bought the album a long-time ago was because – Milt Jackson – was playing the vibes, one of my favourite instruments.
Milt Jackson had a very unique playing style that was, in part, due to the way he set the tremelo up on his vibraphone (low oscillation), which ran counter to the convention of the day.
The song – Bags’ Groove (take 1) – was written by Milt Jackson and was first recorded by his quintet on April 7, 1952.
One of the classics.
And like many classic songs, Led Zeppelin chose to rip it off and include sections in their own song “As Long As I Have You” without acknowledgement.
Following our first gig in more than a year last Thursday, my band – Pressure Drop – will be playing live again this Friday night at the Bar Next Door, 211A High Street, Northcote (Melbourne).
Last week we had a good crowd as live music in Melbourne returns.
Friday night’s show begins at 20:30 until about 23:00.
If you like reggae and dub with a left-wing political slant then I would love you see you Friday night.
It is especially important that people start coming back to live music to support the venues after struggling without government support for so long during the lockdowns and restrictions.
I can even talk Modern Monetary Theory (MMT) during the breaks!
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.