In recent days, alarming news has been coming from the financial front. “There is not enough money!”—bankers, journalists, and socially active bloggers are shouting. «Bankers say that such a hunger of the national currency has not been experienced for a long time. More precisely, never. To carry out financial operations, banks have to lend the hryvnia to each other. Interest rates on term loans reach 20-30% per annum. And this resource is almost exhausted. To get their hands on hryvnia, bankers attract clients with increased interest rates on deposits»—writes Korrespondent. Further, the horrors befalling the economy “from the lack of money” are usually described, and in the reader’s imagination the question inevitably lingers: “how long?”.
For me, in this story, the problem is not the behavior of the NBU, but the behavior of the commentators—those same journalists and socially active bloggers. These people are generalizers and express the moods of various experts and other members of the public who know how things should be done. So, judging by the general idea, which is sometimes expressed and sometimes figured out on their own, the way out of the situation is some form of increasing the money supply. Or devaluation of the monetary unit. Both ultimately have similar consequences. It is precisely this alternative that makes the author of these lines sad, since he sees how the desire to bring benefit once again brings harm.
Let me explain. I am by no means a supporter of the NBU’s policy. I generally believe that any central bank is an absolute evil and the main producer of crises, therefore the best policy of the NBU is the absence of the NBU. However, if we assume for a moment that the central bank is capable of bringing benefit, and that macroeconomics has some meaning, then in this story the emphasis should still have been placed completely differently.
Look. Ukrainians who survived the hyperinflation of the early 90s have learned well that money itself is not wealth. Money provides indirect exchange and division of labor, that is, it is part of the system of wealth production. But the cause of wealth growth is not money, but the free activity of people. For example, if in your country people live on subsistence farming and exchange through barter, then increase or decrease the money supply for them—they don’t care, they don’t use it. But at the same time, public wealth in such a country will still grow, although slowly.
Let’s go further. When the central bank tries to fight inflation (that is, due to its own activities, but we will leave that aside for now), it is not doing so without reason. It is assumed that the economic entity should react to the changes that the central bank introduces into the conditions of its activity. For example, in the case of contraction of the money supply, the economic entity usually has to lower its prices. But the Ukrainian economic entity cannot react, even if it wants to. The Ukrainian economic entity cannot act. It is tied hand and foot by the state. It is tied hand and foot by unofficial violent monopolies. It cannot buy or sell anything, it cannot import or clear anything at customs. In cases where there is a choice between action and inaction, it prefers not to act until it is 100% sure that nothing will happen to it for doing so. In our country, the only truly serious problem is the steady reduction of entrepreneurial activity, that is, the reduction of the search for and production of wealth in all its forms.
And here is what is important. When the central bank is a follower of the shamanic school of “let’s support production by pumping it with ‘air’”, it is not easy to discern the real state of affairs. Economic “revival” here is actually a kind of voodoo art. It turns usually immobile corpses into fidgety zombies. These zombies look like they are busy with something, but in reality, the inflow of new money does not create new wealth, it simply redistributes the old one. Seeing this process is not so easy; again, the bustle of redistribution from afar can be taken for a full-fledged life.
But when the central bank, as now, is a follower of the opposite shamanic school and when it heroically fights against itself, “maintaining the exchange rate,” “reducing the excess money supply,” etc., then the fact that patients are more dead than alive, and those who are still alive are tied hand and foot, becomes glaringly obvious. And if we are talking about public benefit, then journalists, experts, and socially active bloggers should point this out and ask “how long” precisely regarding this matter. But no and alas. Journalists and bloggers prefer cheerful skeletons and cheerful zombies.