Steve Hanke Against Central Banks; They Fuel Wealth Loss and Inflation

Steve Hanke, one of the most important and respected economists around the world attacked central banks. He mentioned that the world needs fewer central banks because they mess up economies and abuse monetary policy.

Mr. Hanke explained that central banks helped economies to crash creating money and fueling inflation. Hanke has experience in dealing with currencies since he established a new currency in Argentina, Estonia, Bulgaria and Ecuador in different moments of their history. Now, he recommends less state banks so as to avoid economic and crash crisis.

For him, central banks have discretionary powers to increase the supply of money, something that is behind currency crisis in emerging markets. Moreover, they also generate inflation, destroying wealth and undermining growth.

In his opinion piece released on September 20 in the famous magazine Forbes, Hanke said that 10 countries around the world have rampant inflation rates that are higher than 35% per year. He mentioned countries such as Argentina, Iran, Venezuela, Turkmenistan, Turkey, Sudan, Yemen, ZImbabwe, South Sudan and Liberia.

In these countries Central Banks print money with the intention to boost their economy and aid their high expenditures. However, this is not helpful, indeed, inflation destroys economies as it happened in Venezuela, Zimbabwe or Argentina.

In the article he does not mention cryptocurrencies, however, they have been created with the intention not to depend from governments and to be protected against bad economic policies. Most of the times, central banks have objectives that are aligned to governments, which do not necessary want to reduce inflation rates.

Mr. Hanke proposes two different ways to deal with these issues and eliminate the central banks. The first thing is to adopt the US dollar. The second proposal is to introduce currency board system that allows individuals to have notes and coins tied to a foreign currency.

He mentioned about this proposal:

“Countries that employed currency boards have delivered lower inflation rates, smaller fiscal deficits, lower debt levels relative to the gross domestic product, fewer banking crises, and higher real growth rates than comparable countries that have employed central banks.”

Currency boards cannot issue credit and imposes hard budget constraints and discipline to governments

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