Sri Lanka official says economic crisis generates debate on role of central banks

August 8, 2009 (LBO) - The current economic crisis has created a debate about the core role of a central bank, a senior Sri Lankan monetary official said, while the practice of central banking itself is under heavy fire in the United States. Some central banks in relatively stable economies now only have one core objective of generating a low level of inflation (inflation targeting), though many still regulate the banking system and also have growth objectives.

Role Model

"Until the recent crisis people were not so sure of the role of the central bank in supervision and regulation," H N Thenuwara, assistant governor of Sri Lanka's central bank said at a regional banking regulation seminar in Colombo.

"In some countries they established new institutions and took this function away from the central bank, so that the central bank could devote itself to its main objective, price stability.

"Now both academic, theoreticians, practitioners; all discuss what should the central bank’s major objective be, should it be price stability or maintaining financial system stability."

In Britain the regulatory function was taken away from the Bank of England, which led to a debate about the speed of rescue and the abi