A Monetary Budget

Abstract

THE DRAWING UP OF BALANCE SHEETS for the monetary system1 has received increasing attention in many countries during the past few years. These balance sheets are particularly useful in helping to make short-term projections-which might be described as Monetary Budgets-that will indicate the monetary developments likely to accompany probable future fiscal and balance of payments experiences. The purpose of this paper is to illustrate, by reference to a hypothetical example, the practical usefulness of such a projection. The illustration proceeds by means of tables arranged in balance sheet form. The figures have no relation to the data of any actual country; they are no more than materials with which to demonstrate methods of working. It should also be said that the example has been simplified, and that many of the problems that exist in such work in real life have been omitted, in order to keep the illustration from becoming too lengthy. The main elements needed in an exercise of this kind are patience and arithmetic. For the purpose of the exercise, we imagine that we are in the Research Department of a Central Bank, and that we have been instructed to examine the monetary prospects for the coming fiscal year, say 1958-59, giving special attention to the measures needed to end the domestic price inflation that has been a constant source of trouble in the past few years. The low level of international reserves has also caused continual concern and has led to the erection of a complex structure of strict controls on international trade. It is hoped that the establishment of domestic price stability may be a first step toward easing and eliminating the restraints on trade. At the moment, the level of unemployment gives no particular cause for concern. The first step is to review the performance of the banking system in the past few years, and for this purpose Tables IA, IB, and IC are