How to disguise a really big political lie? Put it on a bus!

November 21, 2019

Simon Wren Lewis on his blog:

The Tories, and particularly their leader, lie all the time. It is quite shameless. But there is a corollary to this. If your whole campaign is based on one big huge lie, make it your main slogan. Because, even today, many voters still think you wouldn’t dare lie about something so important. Unfortunately recent history suggests otherwise.
We all remember the £350 million for the NHS lie in the 2016 referendum. It was famously on a bus. Except it seems that a good part of the voting population has forgotten the reason that slogan is notorious. It was a huge lie, the opposite of the truth. The have forgotten because the Tories have a new bus with a new slogan that a lot of voters appear to believe. In reality it is as big a lie as the one made during the referendum.
Also consider the key Tory slogans in the last two elections. In 2015 it was “Strong Leadership, A Clear Economic Plan And A Brighter, More Secure Future”. Within a year the ‘strong leader’ had resigned, businesses were unable to plan and the UK’s future was anything but secure. In 2017 who could forget “Strong and Stable”. May lasted two years but no one would call those years stable.
In 2019 we have “Get Brexit Done”. I can confidently tell you that this is in the true tradition of the earlier slogans. A more truthful slogan would be “If you liked the last three years of Brexit deadlock, vote Tory”. Here is why.
The Red Bus is part of British identity and what better way to communicate/propaganda than the same bus!

Lessons from IBM in Nazi Germany (How top companies just kept doing business with Nazis..)

November 21, 2019

Prof Geoff Jones of HBS has recently written a case on role of IBM in Nazi Germany.

He discusses the case and its broad lessons in this superb interview:

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Should RBI have a Deputy Governor based outside Mumbai?

November 21, 2019

RBNZ recently instituted a new DG position based out of Auckland.

I review this interesting development and ask whether RBI should do the same?

Designing Central Bank Digital Currencies

November 21, 2019

IMF econs Itai Agur, Anil Ari and Giovanni Dell’Ariccia in this paper explore designing CBDCs:

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.


The many fountainheads of India’s economic malaise

November 21, 2019

Dr Manmohan Singh wrote an oped in Hindu titled: The fountainheads of India’s economic malaise. The oped was widely discussed and trolled.

Dr Ananth Nageswaran reviews the oped on his blog:

An opinion piece written by Dr. Manmohan Singh has justifiably attracted a lot of eyeballs and nods of approval. Written by a ‘student of economics’ as he describes himself, it is a well written essay. He has also zeroed in on some answers. Restore trust and confidence in administration, in the institutions and unleash massive fiscal stimulus.

He is right to call for an elimination of the atmosphere of fear. Some of us had written about it much earlier. See here and here. The government too has recognised the problem. That is why the Finance Minister recently announced a remote system for the issuing of notices and summons. She said that permission from a two-member collegium was necessary to prosecute tax defaults below Rupees 25.0 lakhs. To be sure, Revenue might resist and is resisting the changes. That behavioural issue transcends this government. On its part, the government has recognised the problem. The government-constituted panel has proposed decriminalizing many of the offences under the Company Law. The sooner its recommendations are implemented the better.

More importantly, the reposing of trust in industry was exemplified by the new corporate income tax regime the Finance Minister announced in September. It provided for low tax rates with fewer exemptions and announced a very low rate of 15% for new manufacturing oriented companies commencing production from 2023. Yours truly wrote that the significance of that measure was not the measure itself but the signal it sent. The government was no longer bogged down by the ‘Suit boot ki Sarcar’ jibe. Indeed, that jibe should remind Dr. Manmohan Singh as to the role of the Congress Party in creating an atmosphere of distrust between the government and the industry. That deserves some further explanation.


What startups can learn from flea markets about competition, customers?

November 20, 2019

Nice piece by Utkarsh Amitabh founder of Network Capital in Mint.

Some things books can never teach. I was reminded of this valuable lesson during a recent visit to Dubai’s Global Village. Designed like a flea market, the village brings together sellers and merchants from 90 countries. During the three hours I spent walking around, manufacturers and artisans tried to sell me everything under the sun—from Yemeni honey and Egyptian perfumes to Bosnian kebabs and Irani rugs.

I was amazed by their negotiation skills and sales techniques. Without any business training, these artisans had mastered storytelling and learnt the art of connecting with customers of different age groups and cultures. The more time I spent interacting with the artisans/entrepreneurs, the more I realized that startups can learn valuable lessons from flea markets.

The first thought that crossed my mind was finding talent. I wondered: What if these artisans were to sell software products instead of soaps and oils? What if startups were to hire them as frontline salespeople or customer success managers?

Takeways: Selling skills, cost efficiency, knowing your customers.

Not just start-ups but we all students of economics have so much to learn from the so called flea markets. You see so much of economics happening live…

Economic warfare: Insights from Mançur Olson

November 20, 2019
Mark Harrison of University of Warwick in this piece:
Economic warfare was widely used in WWII. When one country blockaded another’s supply of essential goods or bombed the industries producing them, why did the adversary’s economy fail to collapse? This column, part of the Vox debate on the economics of WWII, reviews Mançur Olson’s insights, which arose from the elementary economic concept of substitution. He concluded that there are no essential goods; there are only essential uses, which can generally be supplied in many ways.

Cashless Bank Branches in Canada

November 19, 2019

Interesting short paper by Walter Engert and Ben Fung of Bank of Canada.

Cashless or tellerless bank branches have proliferated in several countries in recent years. In a cashless bank branch, teller or counter services such as cash withdrawals, deposits and cheque-cashing are not available. These services are instead provided via automatic teller machines. This note discusses the development of tellerless bank branches in Canada and analyzes the potential implications for cash demand.

Some Canadian banks are moving towards branchless banking:

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How important is it for a nation to have a payment system?

November 19, 2019

Nice speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank.

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In Ahmedabad’s walled city, citizens see red over blue heritage properties

November 19, 2019

Interesting ToI piece on tagging heritage properties.

Ahmedabad earned the tag of heritage city. The municipality is putting blue boards to show which properties are heritage. This concerns people as now they are not sure whether their property remains private and they can repair/sell their properties at will.


How India’s growth (read finance) bubble fizzled out: India since 1991

November 18, 2019

Anantha Nageswaran and Gulzar Natarajan’s recent book is on how finance has captured the world growth since last 25 years.

Financialisation, or the disproportionate importance of financial considerations in economic decisions, has been a defining feature of the economic history of the last twenty-five years. The wave of deregulation that accompanied the neoliberal agenda in the US, aided by the dominance of US dollar and American economy, has resulted in the globalisation of finance. This book examines the rise of financialisation globally, while charting its drawbacks and prescribing suggestions for a definitive overhaul of the structure. Bringing together various strands of the latest research and evidence generated in recent years, empirical analysis, and views of reputed experts in the field, it presents a counter-point to the canonical ideas of analysing financial market dynamics and financial globalisation. It proposes a revision of the current monetary policy paradigm to correct its excessive focus on equity markets and their ‘wealth effect’, embrace a more symmetric response to the economic cycle, and a mandate to focus on financial stability as much as price stability.

In a recent Mint piece, Ashoka Mody points India’s story is no different.  Much of India’s growth since 1991 was finance driven The recent slowdown is part of a wider problem and will not be addressed anytime soon.

India’s gross domestic product (GDP) growth has slowed sharply from 8% a year last year to 5% in the second quarter this year. Optimists, Indian and international, say growth will pick up soon. The International Monetary Fund (IMF) projects the Indian economy will hum at 7.5% a year by 2021. Such optimism is dangerous.

GDP growth could, in fact, fall and languish in the 3-to-5% a year range. The ongoing slowdown is not a short-term disruption. Rather, a financial bubble that began inflating nearly three decades ago is finally fizzling out.

Indian policymakers have patted themselves on the back during these past growth years. They have relied on a narrow vision of economic liberalization, which could do little to generate long-term growth but which did create deep financial pathologies and inequalities.

Meanwhile, India has lagged woefully in creating the human capital and urban infrastructure needed for a modern, competitive economy. Without these prerequisites, India is bereft of a growth model.


Conference on 50 years of bank nationalisation: Indian Banking at crossroads

November 18, 2019

Ahmedabad University organised Conference on 50 years of bank nationalisation: Indian Banking at crossroads. The conference was held over 2 days – 16th and 17th November 2019.

Ahmedabad University was so fortunate to hear so many experts over the 2 days. Apart from the expert sessions, we had research papers presented across 8 sessions. It is really great to see Ahmedabad University contributing to the cause of research on Indian banking.

The conference started with inaugural remarks from RBI Governor Mr Shaktikanta Das. The Governor gave a sweeping account of various developments in banking and NBFCs.

The Governor’s speech was followed by a masterclass from Dr C Rangarajan who continues to enthrall us all with his insights and  erudition. It was quite something to see so many people coming to meet and click selfies with Dr Rangarajan. You know why he is considered as a pilgrimage of Indian economy.

I will post more on the conference overtime….

RBI’s new unified Department of Regulation..

November 18, 2019

I wrote this piece in moneycontrol last week.

I review this decision of RBI to streamline its banking and regulation department.

Central bank independence works differently for monetary policy and banking supervision

November 15, 2019

Nice speech by Yves Mersch of ECB. He says we need to think differently about independence when it comes to banking supervision and regulation:

As mentioned earlier, we need to differentiate between how the principles of independence and accountability apply in the central banking context on the one hand, and in respect of the ECB’s supervisory tasks on the other[13].

The wording of Article 130 of the Treaty makes it clear that the principle of independence concerns the performance of ESCB tasks conferred upon the ECB by the Treaty itself, that is, central banking–related activities. I therefore share the view that this Article cannot be applied equally to the exercise of the ECB’s supervisory functions, which were assigned to the ECB through secondary EU legislation rather than by the Treaty,[14] and were intended for purposes other than the pursuit of the price stability objective.

Whereas the ECB has fully autonomous regulatory and decision-making powers when conducting monetary policy,[15] its discretion in carrying out its supervisory tasks is confined by the decisions taken by European and national legislators or regulators. Moreover, the ECB has a different and higher degree of accountability for its supervisory tasks than for its monetary policy task. This is because taxpayers may be affected by the way in which microprudential supervision is conducted, notwithstanding the intention under the new EU banking resolution regime for the costs of bank failures to be borne by the bank shareholders and creditors.

I in no way question the necessity for banking or financial supervisors to be operationally independent from undue political, commercial banking or other third-party influences. My point is that the degrees of independence that the ECB enjoys as a monetary policy authority on the one hand, and a banking supervisor on the other differ: both the source of independence and the ECB’s role are different in the two functions. And for these reasons, independence in the monetary policy function is stronger and more firmly embedded in the EU institutional framework than it is in the case of the supervisory function.


Most of the time, people are mixing these two aspects of central bank independence.

He also mentions that there are four kinds of independence (when it comes to mon policy):

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Central Banking in challenging times

November 14, 2019

Nice speech/essay by Claudio Borio.  He reviews the experiences in macroeconomics and central banking before and after the 2008 crisis.

Since the Great Financial Crisis, central banks have been facing a triple challenge: economic, intellectual and institutional. The institutional challenge is that central bank independence – a valuable institution – has come in for greater criticism. This essay takes a historical perspective and draws parallels with the previous waxing and waning of central bank independence. It suggests that this institution is closely tied to globalisation, as both spring from the same fountainhead: an intellectual and political environment that supports an open system in which countries adhere to the same principles and governments remain at arm’s length from the functioning of a market economy. This suggests that the fortunes of independence are also tied to those of globalisation. The essay then proceeds to explore ways that can help safeguard independence. A key one is to narrow the growing expectations gap between what central banks are expected to deliver and what they can actually deliver. In that context, it also considers and dismisses the usefulness of recently proposed schemes that involve controlled deficit monetisation.


Payment system of today and tomorrow in Sweden: It is more worried about decline of physical cash

November 12, 2019

Speech by Stefan Ingves, Governor of Riksbank.

Most other central banks are worried about high usage of cash and want to push digi payments. Opposite is true for Sweden whose central bank is worried over decline in usage of cash and wants to keep cash as a payment option in future.

Ingves says cash should remain in circulation for three reasons: Vulnerability, Availability and Competition. It has already asked the government to decide on the legal tender status of cash.


Trends in central banks’ foreign currency reserves and the case of the ECB

November 12, 2019

ECB economists in this research discuss forex reserves:

This article begins with a review of the global trends in central banks’ foreign currency reserve holdings in terms of their size, adequacy and composition, and follows on to examine the ECB’s foreign currency reserves. Just as the reasons for holding reserves have changed over time and across countries, so too have the size and composition of those reserves. Views on appropriate adequacy metrics have also changed. Global foreign currency reserves grew markedly after the Asian financial crisis of the late 1990s, with emerging markets accumulating large reserves to self-insure against potential shocks. In some cases, the growth in reserves was a by-product of export-led growth strategies. While global foreign currency reserves have traditionally been invested primarily in US dollar-denominated financial assets, in recent years holdings have become more diversified in terms of both currency and asset classes.

The second section of the article describes how the ECB’s foreign currency reserves are invested in the light of its main purpose, which is to ensure that the Eurosystem has a sufficient amount of liquid resources whenever they are needed for its foreign exchange policy operations involving non-EU currencies. The investment framework includes three layers of governance, representing: i) the strategic investment policy; ii) medium-term tactical positioning; and iii) day-to-day portfolio management. The way in which the framework involves the national central banks (NCBs) of the Eurosystem in the active management of the ECB’s foreign currency reserves is both unique and intricate. The article describes this active management approach, the internal competition between NCB portfolio managers and the diversification of portfolio management styles that the framework fosters.


Changes in India’s Macroeconomic Perceptions: Evidence from the Survey of Professional Forecasters

November 12, 2019

Sanjib Bordoloi, Rajesh Kavediya, Sayoni Roy and Akhil Goyal of RBI in this Nov-19 Monthly Bulletin article:

This article presents an analysis of annual and quarterly forecasts of major macroeconomic variables in the Reserve Bank’s bimonthly survey of professional forecasters (SPF). Forecast of output growth and CPI inflation for 2018-19 and 2019-20 was revised down. The forecast path of exclusion based CPI inflation was gradually revised up for 2018-19 but lowered for 2019-20. Forecast performance improves with reduction in forecast horizon, indicating forecasters’ tendency to update their forecasts with incoming information and provide more accurate estimates as they approach closer to the final estimate of the underlying indicator. The forecasts are found efficient for headline CPI inflation and exclusion based CPI inflation. Disagreement measures for GVA growth
have remained close to its medium term average for all the forecast horizons in the recent period. The general behaviour of the inflation uncertainty largely shows that uncertainty moderated since November 2018.


A call for more Europe and more European integration

November 11, 2019

Sabine Lautenschläger who resigned from ECB calls for more Europe in a recent speech:

“I am a German and will remain a German, but I have always been a European too and have felt as such.”

These are the words spoken by Konrad Adenauer in 1946, when reconciling Europe and securing peace were paramount. National arrogance and isolationism had culminated in two world wars – two world wars which had wreaked death, misery and chaos on Europe.

Adenauer‘s conviction had a profound influence on many people, including my parents. His core belief that “we’re Europeans first and Germans second” is still a great inspiration to me today. For those who lived through the Second World War, a strong Europe, a united Europe, represented the future and the path to lasting peace.

But today some people harbour doubts about the European idea. Nationalism and populism are flaring up again and parties that are critical of the European project, or even reject it outright, are gaining ground in many countries.

This is an alarming development.

We must not forget the lessons from our history. Borders and walls within Europe have never created security. A united Europe has bestowed peace and prosperty to each Member State and its people – the German people included.

And the future challenges facing each and every one of us can only be met by working together in Europe.

How these forces of union and break up of unions go in circles…

Union Bank of India completes 100 years!

November 11, 2019

Union Bank was established on 11 Nov 1919. Today it completes 100 years and enters 101st year.

Many more anniversaries to the bank..

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