Monetary policy 2.0

It is the high time that monetary policy religiosity enshrined in the holy books of central banks of the West was apostatized. Archetypically, a monetary policy is meant and designed to manage the money supply, to achieve price stability, to control inflation and fix a discount rate.
Yet monetary policy has been rendered toothless in most of the developed countries and it has lost its value and potential to help manage economies there. The BoJ is struggling to raise inflation rate to 2% in Japan but has so far failed. Failure of the BoJ and the ECB is indicative for all central banks to rethink their old philosophy in relation to inflation.
It is not an ordinary phenomenon that the BoJ and the ECB have introduced negative interest rates, nevertheless, their new stunt has also not delivered. This bizarre policy demands from the lender to pay interest to the borrower. As per normal practice, when economies struggle with their declining growth rates; interest rates are decreased and money supply to the creditors is tried to increase through various tools of central banks. But what should be done when despite the opening of floodgates of money supply there is no success in boosting the growth?
Strangely, organisations such as the ECB, the BoJ, the Bank of England and the Fed are struggling to increase the inflation rates. So this change of philosophy of money supply must oblige central banks of developing countries to revisit their existing position on the issue. Where do they stand? Understandably, they do not need negative interest rates to boost their 'growth rates'. It is important that the central banks in the developing countries must stop blindly following the preachers and the policymakers of the developed countries and must develop indigenously-based monetary policy paradigm.
Regrettably, central banks in developing countries have hitherto failed to come up with an indigenous approach to the monetary policy and money supply, for they still have the same conviction in the blunted tool of developed countries that monetary policy is meant for arm-twisting of inflationary surges. In fact, central bank managers in developing countries are finding it hard to unlearn the inculcated lessons of the Western economists and institutions. Nevertheless, this is the time that these managers of central banks started carving their own path to progress.
Why inflation at the first place takes place? Theoretically, there are three causes/types of inflation: Demand-pull inflation, cost-push inflation and inflation due to the expanded money supply. Undoubtedly, excessive money supply was one of the major causes of the creation of a bubble in the US economy during the late 1990s till bursting of the bubble and the collapse of their financial system in 2007-08.
Excessive money supply inflation has always been the result of disproportionately low quantity and volume of goods and services in the face of large amounts of printed money available with high demand for goods and services. It is famously said that due to cheap loans too much money chases too few goods and services which result into inflation. This is still true for all the developing countries where there are fewer goods and service in proportion to the demand or potential demand of the consumers and economy in general.
Obviously, if the size of a basket of goods and service does not increase proportionately to the increase in an amount of printed money available in the market with high or potentially high demand, inflation is bound to occur/surge. So, what is the solution for such inflation? Simple answer: increase the size of basket in proportion to increase in demand for goods and services.
Unfortunately, economies of developing countries in general for the last many decades or since their inception or independence have remained backward, agricultural, rural and dependent upon imported consumer goods and services. Economies of these backward and developing countries failed to produce enough amounts of goods and services in line with increasing population, growing economic demand and changing life pattern.
But fortunately, globalisation of knowledge, research, innovation and development (KRID) after the advent of digital and other technologies since the 1990s have opened up new avenues of growth and development for the people of backward and developing countries. Knowledge is now available to almost all. Relatively cheap smart gadgets are available to even in the far-flung areas. Education is gradually getting universal. More tech-savvy persons are being added every day to already existing corps of technology workers than they used to be in the decades before the 1990s. And, such increase in human power (brainpower) has resulted in a new objective phenomenon, ie, sci-tech-human power complex. And, which is the main cause of growth and development in backward and developing countries throughout the globe. Hence, it is utmost essential to gear up the process of increase in human power unleashed by sci-tech-human power complex.
And here lies the new role of central banks. They need to formulate monetary policy 2.0. What could it be? Experts must elaborate it; I am simply floating the new idea. Apart from other important aspects, people, in general, need two main tools to boost their mental faculties and to increase their participation in the economic growth and development.
1) Access to newer technologies like smartphones, e-readers, android TV, small video player with USB port and the internet; 2) Energy to use such digital gadgets and to energize their basic domestic equipment including fans and light kits. And, the best source of the decentralised and off-grid energy is solar power. Solar energy, it must be pointed out, is accelerating ahead with the self-driven engine and is increasingly getting popular in the areas where there is a lack or shortage of grid energy. Solar energy phenomenon now requires a policy support both from governments and central banks.
Central banks should provide interest-free loans to all for newer technologies discussed above and for the installation of solar equipment. However, such loan to the people should not be in the form of cash rather cash should be disbursed to the organisations meticulously selected for the purpose through an absolutely transparent process. Such vendors must provide high-quality gadgets and equipment at low in-built and on agreed profit margin. A thorough system of monitoring for the purpose must be put in place.
Central banks should open a specific window/workstation in all commercial bank branches where the staff of relevant bank should collect requests of loan for such gadgets and equipment through apps, smartphones, and online systems. Such requests shall also be simultaneously displayed on the monitors and system of central banks at local and main offices. The expense of service charges paid to banks should be adjusted by the central banks against their own income from other resources.
There should be a strict timeframe for finalisation of approval which in no case should be more than 7 working days. As soon as loan requests are finalized, they must be forwarded to the said vendors through the online system and such vendors must be bound to provide gadgets and equipment to the mortgagor within next 7 days. Vendors shall also be made responsible to install the equipment wherever necessary and should be paid only after positive feedback by the debtor and after the furnishing of an online certificate by the vendor.
Such money supply policy will not increase the inflation rather it will boost the short-term and long-term growth and development prospects. Such money supply should be considered for other essential requirements of the people as well. Let's not waste the time and let's be part of sci-tech-human power complex phenomenon which is reshaping the whole world at an exponential rate. Sooner the better!