The NRBT Celebrates 35 Years, but is the Tongan Pa’anga (TOP) Losing Ground?
Opinion
By Edwin Liava’a
I tirelessly tried to do an online transaction yesterday with my local bank account, only to find the hurdles are beyond dire straits with unfavorable exchange rates that made me wonder about the recent milestone of the National Reserve Bank of Tonga (NRBT).
As NRBT celebrates its 35th anniversary on September 16, 2024, there’s much to commend. The bank reports an audited net profit of $35.8 million, a remarkable 75% increase from the previous year. At first glance, these figures paint a picture of financial success and stability. However, as we commemorate this milestone, it’s crucial to look beyond the numbers and consider what truly constitutes economic prosperity for the people of Tonga.
The impressive profit margin certainly seems cause for celebration, but it prompts us to delve deeper into the broader economic landscape, particularly the purchasing power of the Tongan Paʻanga (TOP) in relation to major currencies like the US Dollar (USD). In recent years, inflation has posed significant challenges worldwide, impacting local currencies and their buying power. This global trend raises an important question, “Does an increase in profit genuinely reflect a thriving economy, or might it obscure underlying issues related to inflation?”
Elon Musk, known for his astute observations on economic matters, has described inflation as “the most regressive tax of all.” He argues that “The rise in prices (inflation) is caused by government overspending, which increases the amount of money faster than the increase in goods & services output.” This perspective is particularly relevant for Tonga, where the purchasing power of the TOP is of paramount importance to citizens’ daily lives.
Interestingly, Musk’s views align with those of Jeff Bezos, who has also criticized inflation as a regressive tax that hurts lower-income households. Both billionaires argue that inflation disproportionately affects the least affluent members of society. Their shared concern underscores the far-reaching implications of inflation on economic equality and social welfare.
Consider a scenario where the Tongan economy is generating substantial profits, but the currency’s value is declining against the USD. In such a case, the real benefit to citizens may be minimal or even negative. If inflation outpaces wage growth, the purchasing power of everyday Tongans diminishes, making it increasingly difficult for families to afford basic necessities, despite the bank’s impressive profit figures. This situation would exemplify the regressive nature of inflation that Musk and Bezos warn against.
The NRBT plays a pivotal role in managing monetary policy and ensuring the stability of the TOP. An effective central bank’s focus extends beyond profitability; it must also maintain the currency’s value and control inflation. I do concur with Nobel Prize economist Paul Krugman views on central banks, they should focus on the long-term health of the economy rather than short-term profits. This insight underscores the importance of measuring the NRBT’s success not just by its annual profits, but by its ability to support a stable and robust economy where the purchasing power of the TOP remains strong.
As we look to the future, it’s essential for the NRBT and policymakers to maintain a vigilant eye on the interplay between profits and purchasing power. The ultimate goal should be to ensure that economic gains translate into tangible benefits for the people of Tonga. This means implementing policies that not only contribute to the bank’s profitability but also counteract inflation and foster sustainable economic growth.
The NRBT’s 35th anniversary is indeed a moment to appreciate the institution’s achievements and its crucial role in Tonga’s economic landscape. However, as we celebrate this milestone, let’s also recognize that the true measure of its success lies in the purchasing power of the TOP and the economic well-being of all Tongans.
Moving forward, the focus should be on crafting and implementing policies that bolster not just profits, but also protect and enhance the purchasing power of Tonga’s currency. By prioritizing these principles, we can work towards a future where the Tongan economy thrives holistically, ensuring that financial success on paper translates to real-world prosperity for its citizens.
As Tonga navigates the complex waters of global economics, the NRBT’s role becomes ever more critical. Its success will be measured not just in numbers, but in the smiles of families able to afford a better life, in the growth of local businesses, and in the overall economic resilience of the nation. Here’s to the next 35 years of the NRBT, may they be marked by both financial success and true economic prosperity for all Tongans, with a keen eye on maintaining the purchasing power of the Paʻanga and mitigating the regressive effects of inflation.
