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That $60 billion decision

Aug 06, 2015 Letters

DEAR EDITOR,
According to media reports, the Private Sector Commission (PSC) has cautioned government not to withdraw some $60 billion from the commercial banking system.
From the reports, no explanation was offered by the PSC for this position taken.
However, one can infer that what the PSC seems to be saying is that our commercial banks are dependent on government deposits to maintain their successful operations.
The economy is at a troublesome and worrying place currently, but I don’t see why the PSC would advise against government withdrawing its own money from the highly profitable commercial banks.
If government deposits into a commercial bank, it is the same as any private individual or company doing so: they can withdraw their deposits at any time. Commercial banks must cater for this reality at all times. Moreover, the central bank caters for this through the application of a statutory reserve requirement (a percentage of transaction deposits and other liabilities) for commercial banks.
Worst-case scenario, government can act as a lender of last resort, through the central bank, to the commercial banks, if those banks face any threat of bankruptcy as a result of the large withdrawal.
If the $60 billion figure is accurate, it then raises another question of the opportunity cost of government leaving all that liquidity dormant.
This money could have been invested into many different development programmes generating higher financial and social returns.
The present government should use those funds to stimulate public investment and consumption and increase public demand.
The more that money is out there, it means the private sector would have increased opportunities to access more available cash in the economy, thus improving their bottom-line.
If the $60 billion stays dormant in commercial banks, I don’t see how that helps anyone but the rich banks.
Clinton Urling

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