bank had not followed the due procedure given in the banking act. finally, the government as a part of political decision in the interest of depositors bailed out the bank by vesting the bank with a new state bank set up for the purpose. if the central bank was conscious of its responsibilities, it could have resorted to a different path to resolve the bank at the very early stage. world over, central banks are blamed for delayed action, not effective to resolve problems. world over, regulators fall behind the market although they are expected to correct the market. regulators are burdened with laws, procedures and bureaucracy and lack of latest market information. they work for office hours. however, market participants work 24 hours and are innovative for regulatory arbitrage. the human greed supported with moral hazard of regulation creates bubbles cyclically leading to financial and economic crises from time to time. the regulators and politicians create new laws, but they fail to prevent the next bubble. as a person being in both regulator and markets, i will do a lot of work to address this bis central bankers ’ speeches universal issue hopefully. however, as financial regulators cannot control the greed, financial bubbles and crises are to happen. finally, the central bank independence is the confusing and very technical subject. no central bank is divine. central banks are also state institutions, but with greater functional independence provided for in the respective statutes due to its specific nature of operations involving printing of money and conducting monetary policies. the simple reason for the central bank independence is that a government cannot have one hand to spend through the fiscal policy and other hand to print money to finance expenditure through the monetary policy. therefore, the clear separation between the treasury and central bank is necessary, otherwise, economies and monetary systems will collapse sooner or later. therefore, the central bank independence and the close co - operation between the central bank and the treasury are highly recognized. i wish to quote from the exter report on this matter as the best piece of literature. i quote “ …. there are, however, many important problems of monetary policy, especially those relating to fiscal policy, on which a central bank must necessarily work in close harmony with the government. on such problems, experience in many countries has shown that a central bank with a degree of independence of the government proper can make economic analyses and hold views which are more detached and objective than those of a government department. many governments have learned to value and to use the sort of independent and objective advice on monetary and other

lanka is about bis central bankers ’ speeches rs. 422 billion and is a liability of the central bank, even as it is an asset to the rest of us. the central bank is prepared to pay against any currency note in any other value of legal tender preferred by the public. the central bank maintains a cash counter for this. in order to protect the public trust in currency, the central bank primarily undertakes two actions. first, it attempts to issue currency notes with intrinsic material security making it difficult for counterfeiting and designs are chosen to facilitate easy recognition of different currency notes by people including the blind. still, the world over currency counterfeiting and design concerns prevail irrespective of modern technology. second, it attempts to protect the real value of currency by maintaining inflation at low levels through monetary policy. if prices or inflation rise day by day, the value of currency in terms of goods and services it can buy gets less and less and people will tend to dispense with currency as money and tend to use other international currencies as their preferred media of exchange. in such events, the currency system will collapse and the existence of the central bank will be questioned. this happened in germany in 1920 and zimbabwe in recent years. second, the conduct of monetary policy monetary policy contains measures to regulate the supply, availability, cost and international exchange of the country ’ s money. accordingly, levels of interest rates, exchange rate and credit in the economy are under the control of the central bank. these economic variables determine almost all economic activities of the public such as investments, savings, international transactions, production and employment. their changes first affect our expenditure ( what is called aggregate demand ) its impact on production, income and employment. this course of effects is termed the monetary policy transmission mechanism. as these variables are part and parcel of our day - to - day life and their effects vary on different segments of people, the world over central banks get their fair share of praise or blame for whatever ensues in the economy. savers criticize the central bank for low interest rates whereas producers who fund their production activities from bank loans appreciate low interest regime. the central bank is also routinely criticized by various segments for its policy for managing the exchange rate. ultimately, the central bank manages monetary policy to suit its mandate to secure the objectives it priorities, given the economic knowledge of the authorized officers and the monetary board members. it is the monetary policy that determines how much money the central bank