The past three columns explored the government’s overdraft at the BoG. We learned that spending from the account intensified from around 2011 and the balance turned negative towards the end of 2015. This is an example of monetary financing in the presence of a previous domestic debt ceiling. Guyana is teaching the world monetary economics, a gold mine for academics like me.
Guyanese politicians have demonstrated that money financing of deficits does not only occur when a central bank directly buys bonds or Treasury bills from the government. Guyana uses a different framework (known to Neo-Chartalists) in which the government emits payments from its central bank account. This injects money into the economy and the BoG, in turn, mops up the excess reserves by selling Treasury bills to the banks and other institutional investors. All of this raises several questions regarding inflation and other macro pathologies. The inflation issue will be looked at in a future column.