When an island in USA issued its own shell based currency..

August 16, 2017

Interesting bit from history of currency in US(HT: who else but JP Koning):

When the Depression and resulting banking crisis hit their community, the residents of the coastal town of Pismo Beach, California picked an unusual but logical medium of exchange. The pismo is a species of clam with a very thick shell, then found in large numbers along the California coast and prized as a food.

A town named after the bivalves suggests an adequate supply of their shells. Perhaps with tongue in cheek, the merchants and officials of Pismo Beach (who were often the same people) decided to make the best of a bad situation, and to make the humble clam shell into an object of trade. This they did. The Chamber of Commerce and no fewer than eleven merchants issued clamshell scrip.

Each piece was numbered, and each piece was signed on the front and on the back. As with the stamp notes of the Midwest, it was necessary to sign each clamshell on the back in order to keep it in circulation. No formal requirements may have existed, but informal pressure certainly would have endorsed the practice.

Restwell Cabins issued “notes” in three denominations: twenty-five cents, fifty cents, and one dollar. The larger the amount, the larger the shell. The issue may have been partly intended as a spoof, or for sale to tourists, in the manner of German notgeld around 1920. Redemption would never be a problem because collectors would want to keep these pieces in their cabinets or trade them with their friends.But it was also intended partly as a real, if unique, circulating medium. The

Restwell Cabins issue bore the motto, “IN GOD WE TRUST.” Each piece was numbered, and each was signed on the front and on the back. This specimen is dated March 8, 1933. This was in the middle of Roosevelt’s national banking holiday, and it is exactly the time when we might expect to see people take money into their own hands.


Why do regional parties work in some States and fail in others: Case of Karnataka..

August 16, 2017

Over the long weekend, Kannada film superstar Upendra recently decided to float his own political party.

The decision led to criticism as people of Karnataka have little appreciation for regional parties:

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First create noise over Government getting bonanza from demonetisation, then create more when government does not get one…

August 16, 2017

This is with reference to the RBI transferring Rs 30659 cr of its surplus to the Government.

The experts and media say this has halved from previous two years transfer of 65000 cr. This is how the transfers have looked since 2000-01. The recent transfer of Rs 30659 cr is the fifth largest transfer in the period.

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70 milestones in Independent India’s business history

August 16, 2017

Mint has compiled a nice snapshot of the 70 milestones in  Independent India’s business history.

 From the reassuring certitude of the five-year plans to the electrifying promise and reality of the Goods and Service Tax Act, the 70 years of independent India’s history have been defined by events that reveal a young nation in search of an appropriate development model.
Mint looks at 70 such markers that have led to an ecosystem in which India can vie for global economic leadership.
Nice bit.

70 Years of Indian Independence: The messy partition of the Reserve Bank of India

August 16, 2017

Anuj Srinivas has a piece on how RBI was pushed into managing Partition of the monetary union of the two countries. Though, this blog had also posted on the topic in the demonetisation period. Then JP Koning had pointed how State Bank of Pakistan continues to include IOUs from India in its balance sheet.

But Srinivas has some more interesting things to add especially the quotes from different parties. For instance, the issue of cash balances led to war of words between the two countries:

Eventually, when the dust settled, the last settlement to be decided was the distribution of cash balances: The Indian government’s cash balance at the time of the Partition were a little under Rs 400 crore and Pakistan’s share was fixed at Rs 75 crore, which was inclusive of Rs 20 crore made available to Pakistan as working balance on August 15, 1947.

The remaining Rs 55 crore owed to Pakistan would go on to become a divisive and controversial issue that would strain relations between the RBI and Pakistan.

“The bank’s functioning as banker to the Pakistan Government was smooth in the first four-and-a-half months, but in early January 1948 serious trouble arose on two very important issues raised by the Pakistan Government. The two issues were: (i) grant of accommodation to the Pakistan Government and (ii) transfer of Rs. 55 crores of cash from the Government of India’s cash balances with the Bank to Pakistan Government’s account,” the RBI notes in its history.

What had happened was that soon after the Partition, Kashmir started becoming a focal point of controversy, worsened after Pakistan’s invasion.

Much before the Pakistan government wrote asking for its due, the RBI governor tentatively reached out to the finance ministry in late 1947 over the question of transferring the remaining Rs 55 crore. In a telegram that reminded the Indian government that the cash balance could be transferred in lots of Rs 3 crore, Deshmukh prefaced his message by saying: “While recognising decision influenced by political considerations, I feel it is my duty to draw attention to considerations of currency which may not appear clearly to Government…”

The finance secretary’s reply was short and curt: the Indian government did not propose releasing any part of the cash balance at present.

Being put in a rather tricky situation, the RBI hesitantly pointed out to the Pakistani government while it would be possible to effect a ways and means advance of Rs 5 crore, payment of the remaining cash balance “appeared to be very uncertain in the light of pronouncements made on both sides”.

Believing that the RBI was trying to both apply limits on the ways and means advance and angered over being denied the remaining cash balance, Pakistan’s finance secretary sent off sharp reply to the RBI and Deshmukh:

“The Pakistan Government find it difficult to believe that a responsible institution like the Reserve Bank would wish to risk its reputation for fair dealing were it not for the interference of the India Government who are determined to strangle Pakistan financially and economically. In the circumstances the straightforward course for the Reserve Bank would be to inform the Government of Pakistan that it finds itself unable to continue as its Banker and currency authority, and to effect a division of the assets of the Bank forthwith.”

In a separate memorandum, Pakistan’s finance secretary also demanded that the RBI should transfer Rs 55 crore of cash balance to the account of the Pakistan government; otherwise, the central bank should not allow the government of India to operate their account without the Pakistan government’s consent.  “We hereby demand that the Reserve Bank should treat both Dominions on an equal footing in this respect”, the memorandum concluded.

What explains India’s stance? As Gopalkrishna Gandhi has pointed out, the government was worried. “Nehru and Patel favoured holding the amount back. Would Pakistan not use the money to purchase arms to use against India?” Gopalkrishna noted back in 2014.

Deputy prime minister Sardar Vallabhbhai Patel defended the decision in January 1948 by saying he had made it clear to Pakistani authorities that the Indian government would not “regard the settlement of these issues as final until agreement has been reached on all outstanding issues”.

Nice read..

After Partition, Sindhis Turned Displacement Into Determination and Enterprise

August 14, 2017

Two pieces on Partition and Sindhis. One by Saaz Agrawal in Wire  and Two by Aisha Nazim in Scroll.

Both pieces look at how Partition impacted Sindhis in different parts of the Indian sub-continent..

RBI’s new research series: Mint memos..

August 11, 2017

Today RBI announced a new research series and has a nice name to it: Mint memos. However unlike memo which is a short medium of communication and one would expect some gossip from Mint street, these are mini research papers. Quite like St Louis Fed’s Economic Synopses or Richmond Fed Economic Brief

The Reserve Bank of India announces a new series on its website called ‘Mint Street Memos’ (MSM). On navigating to the landing page of MSM, the viewer would be led to document/s that are in the form of brief reports and analysis on contemporary topics, prepared by the staff of RBI and Centre for Advanced Financial Research and Learning (CAFRAL), or drawn from one of the recent publications of the Bank with commentaries by the author/s. MSM releases will also feature salient facts, data and tables that are germane to the topic.

The views and opinions expressed in MSM series are those of the authors and do not necessarily represent the views of the RBI.

The first releases under MSM published today, cover “Demonetisation and Bank Deposit Growth” and “Financialisation of Savings into Non-Banking Financial Intermediaries”.

Hope this series continues…


India’s new regime of policies and regulation are a curious mix of modern motives and medieval methods…

August 11, 2017

Interesting piece by Andy Mukherjee:

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Opportunity cost lessons from Gulzar/Kishore Kumar/Amol Palekar

August 11, 2017

Another interesting piece from Amit Varma on learning economics from Bollywood:

Aane wala pal/ Jaane waala hai/ Ho sake tho isme/ Zindagi bita lo/ Pal jo yeh jaana waala hai/ Ho ho.’ — Gol Maal.
‘The moment that is to come/ Will soon be gone./ If you can/ Live your life/ In this passing moment/ Ho ho.’ 

These words were written by master economist Gulzar, sung by policy wonk Kishore Kumar and acted out, with his customary charm, by polemicist Amol Palekar.

Bindiya Goswami goes visibly weak in the knees when the song begins, though we can’t see her knees, and even Utpal Dutt seems to have a bit of a man crush. The song was not a wasted effort — and in that sense, followed its own instruction.

Aane Wala Pal is a favourite of economists because it is such an eloquent poetic expression of one of the most important concepts in economics: Opportunity Cost. The one basic truth about this world, poets and economists have long bemoaned, is scarcity. Everybody can’t have everything, and choices have to be made. Opportunity Cost, in the words of economist James Buchanan, “expresses the basic relationship between scarcity and choice.”


Though, would want to keep economics away while hearing this wonderful song. It is important not to let economics mix with everything in life…

Language battles in India: Case for declaring Tulu as an official language

August 11, 2017

Language remains a huge unifying force for people. Recently, people in Bangalore opposed imposition of Hindi as Metro stations also had Hindi on the station name boards. This led to the boards being taken off and not the Boards will just have Kannada and English.

This successful movement has captured the imagination of the Western part of Karnataka as well.  People from the region are asking to include Tulu in the Eighth Schedule of the Indian Constitution. Currently, there are 22 languages in Indian Constitution.

Over the past few months, pro-Kannada campaign gained huge momentum in Karnataka after ‘Namma Metro Hindi Beda’ took Twitter by storm. Now, a youth group – Jai Tulunad, has started a campaign called Tweet Tulunad, demanding that Tulu be included as an official language in India.

On Thursday, to mark the third anniversary of the organisation, thousands of youth began tweeting from 6 am, demanding that Tulu be included in the Eighth Schedule of the Indian Constitution. With the hashtag #TuluTo8thSchedule, members of the organisation began tweeting aggressively, after which the campaign gained momentum.

The demand for inclusion is hardly new. What is interesting to note is that local people are saying how Kannada was imposed on the region:

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History of money from barter to Blockchains….

August 11, 2017

Nice pictorial write-up from Mohit Mamoria on history of money. One can argue about the specifics (like in some countries it was not the temples but Goldsmiths which issued paper money and so on) but broadly the story fits in well. The pictures with it make it even better read.

In the end he says, value of money is derived from its scarcity:

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Bank of England to continue printing polymer banknotes made from traces of animal-fat: Economics wins over religious sentiments…

August 11, 2017

Bank of England has released polymer notes of GBP 5, 10 and was planning to release 20 one as well. However, these notes are made from from polymer manufactured using trace amounts of chemicals, typically less than 0.05%, ultimately derived from animal products.

This animal fat usage in notes had led Hindu groups and temples to refuse accepting these notes:
Some Hindu temples and vegetarian cafes refused to accept the new five pound note featuring World War Two leader Winston Churchill, which the BoE says is more durable and harder to fake. 
The central bank was forced to run a public poll where 88% dissented against said polymer bank notes. However, the alternate was Palm oil which had environmental consequences. The costs and benefots are also in favor of the polymer notes.
So Bank of England is planning to continue with the polymer notes. Economics wins over religious sentiments:

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Split within RBI MPC flags flawed inflation model…A case of too soon?

August 10, 2017

Anirban Nag has a piece reflecting on the recent MPC split. He says the core problem behind split is the inflation model which is out of sync with Indian reality.

…the split raises questions on how much trust the MPC members place in the monetary authority’s forecasting model, which has consistently overestimated price pressures. 

The RBI’s inflation assessments have come under intense scrutiny after a slew of readings fell short of projections. Prime Minister Narendra Modi’s Chief Economic Adviser Arvind Subramanian criticized forecast errors that he said are “large and systematically one-sided in overstating inflation,” and called on policy makers to take a long, hard look at June’s record-low 1.5 percent reading.

where the RBI’s model is probably flawed is that it is structured around the concept of a small, open economy, according to Rohan Chinchwadkar, assistant professor of finance and accounting at the Indian Institute of Management at Tiruchirapalli in the southern state of Tamil Nadu. That would be akin to $300 billion Singapore, while India is a $2 trillion behemoth where almost half of gross domestic product is generated by an intricate web of unregistered networks that employ more than 90 percent of workers. 

“This might be one of the causes of disagreement within the RBI,” Chinchwadkar said. “There is no clear model understanding of the impact of monetary policy and shocks on India-specific features like the informal sector and shadow economy. So the position of MPC members depends on their own judgment and risk preference.” 

The central bank’s staff published a working paper in November in collaboration with the International Monetary Fund, aiming to “sketch out a model with India-specific features to capture the dynamics relevant to an emerging market economy.” It concluded that forecasting performance is improved by using the Bayesian statistical technique which assesses the probability of something happening based on observed data. 

The current model is based on the principles of New-Keynesian economics, which evolved from classical Keynesian economics but differs in terms of how quickly prices and wages adjust. It consists of four variables: the output gap, the Phillips curve which assesses the impact of unemployment, the Taylor rule for short-term interest rates that also guides several global central banks, and interest rate parity through exchange rates.

When India moved towards the new monetary policy framework recently, it was suggested that India joins the ranks of advanced countries. Gone are the days where policy was driven by experience and discretion and now is the era of rules and models…

Now we are told that the model does not reflect Indian reality and one has to go back to the drawing board.

Who is Indian, who is foreign? Case of Indian economic policy advisors..

August 10, 2017

Another sudden exit of an Indian policymaker and again there are cries of what led to the move: What was the reason? Government Pressure or Career move?

The fire was further fueled by a piece from Rajiv Kumar the new chief of Niti Aayog. His piece came on 7 August and his appointment was confirmed on August 5. He could have taken off the piece but nevertheless.

He says there is a need to free the country from influence of foreign trained economists. He actually suggests that one could see more resignations from some more prominent names in coming days! It is also interesting that the piece appeared in the Hindi daily Dainik Jagran..

The piece led to some fireworks:

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Investing in public infrastructure: Roads versus schools

August 10, 2017

Manoj Atolia, Bin Grace Li, Ricardo Marto and Giovanni Melina analyse this long standing debate. 

Education is a long term benefit but impact of roads is seen over a shorter term. Thus roads get preference:

Were Banks ‘Boring’ before the Repeal of Glass-Steagall?

August 8, 2017

The presumption is before Glass Steagall repeal banks were boring and did basic stuff. Post Glass Steagall repeal in 1995, banks became adventurous and did multiple things leading to 2007 crisis.


Not so sure as per this blogpost by  of NY Fed.

So how boring have banks been in the past few decades? Let’s look at some aggregate numbers based on a database I recently assembled on the organizational structure of BHCs. Between 1970, when the data begin, and 2016, more than 13,000 unique corporations have operated at some point with a BHC charter. Of those BHCs, more than a quarter expanded their business scope beyond traditional banking, collectively adding more than 60,000 subsidiaries. These units specialized in activities spanning the financial industry, such as specialty lending, loan brokerage, securities and commodities brokerage and dealing, wealth management, insurance, and much more. 

Was it the partial repeal of the Glass-Steagall Act in 1999 that spurred this expansion? The chart below shows the number of unique financial activities that BHCs collectively engaged in each year. The data indicate that the trend toward expanded activities in fact began in the early 1980s, and continued unmitigated throughout the 1990s. Judging from this evidence, the restrictions under Glass-Steagall did not prevent BHCs from expanding beyond traditional (“boring”) activities by BHCs, nor did its repeal accelerate that expansion. 

Were Banks ‘Boring’ before the Repeal of Glass-Steagall?

Were Financial Holding Companies Expanding? 
Perhaps instead of looking at BHCs as a whole, we should look specifically at BHCs that converted into financial holding companies (FHCs), the legal charter introduced by the Gramm-Leach-Bliley Act (GLBA) that allowed firms to expand more freely across a broader set of activities. FHCs may have be the ones that actually chose to expand, but their dynamics could be lost within those of the broader population. Out of 5,354 BHCs in existence at the end of 1999, 526 became FHCs between 2000 and 2001. The chart below shows how the scope of financial activities has fluctuated for those FHCs and for all other (non-converting) BHCs, relative to 1999. Somewhat contrary to expectations, it seems that FHCs and BHCs experienced virtually identical dynamics in the post-1999 years, with no upward trend detectable for either group. 

Were Banks ‘Boring’ before the Repeal of Glass-Steagall?

In sum, the repeal of Glass-Steagall in 1999 does not seem to have ignited a flurry of new activities. As I note in a recent New York Fed Staff Report(see page five), banking firms had already been widening their business scope for a long time, so it is not clear that that particular regulatory reform can be considered the catalyst of the Great Recession some ten years later, nor is it immediately obvious how reinstating restrictions per se would reduce the likelihood of a future crisis. But how is it that banks were already allowed to engage in less “traditional” activities, and what does that tell us about the nature of the banking business? To address those questions, we need to take a look at the history of banking regulation—something I will cover in a follow-up post. 

Hmm.. Looking forward to the post..

Bangalore was the first Indian city to get electric street lights …

August 8, 2017

It was on August 5 in 1905 (112 years ago)  (this piece says it was August 3)that saw an Indian city get electricity! The chosen city was not Calcutta or Bombay or Madras but Bangalore. Though Calcutta was the first city to get electricity which was from a thermal plant.

Infact the article says that Bangalore was the first Asian city to get electric streetlights:

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Cultural change and intergenerational transmission: Some lessons from China’s Cultural Revolution

August 8, 2017

Gérard Roland and David Yang in their research look at how culture shapes beliefs over a long time:

Beware of the Useful Idiots..

August 7, 2017

A hard hitting piece by Amit Varma:

Almost a century ago, Vladimir Lenin is said to have coined the term ‘Useful Idiots.’ The term referred to those intellectuals or eminent people who gave a movement respectability by association, but weren’t actually respected within the movement itself. RationalWiki defines a Useful Idiot as “someone who supports one side of an ideological debate, but who is manipulated and held in contempt by the leaders of their faction or is unaware of the ultimate agenda driving the ideology to which they subscribe.”

If this sounds familiar, it should. Useful Idiots abounded in Lenin and Stalin’s time – many were sent to the Gulag once their utility diminished – and authoritarian despots since, from Hitler to Mao to Chavez – have had their own set. And of course, if you live in India in 2017, there are Useful Idiots here as well.

I want to make it clear that I am not referring to any of the people I mention in this essay as idiots. I will use the term ‘Useful Idiot’ only in the sense outlined above. Some of the Useful Idiots that will come to mind are accomplished individuals, even giants of their field, and their behaviour is as much poignant as it is deplorable. Some of them are people I admired or liked, and as I look at them, it strikes me that in a parallel universe, I could be in their shoes. We are all frail.


Konkani vs Marathi: Language battles in golden Goa…

August 7, 2017

Superb piece by Karthik Venkatesh.

The late 80s Hindi movie Goonj, shot mostly in Goa and starring Kumar Gaurav and Juhi Chawla opens rather dramatically—with a Fiat blowing up even as the person who rigged it up as a car bomb is scurrying for cover. At first sight, it appears to be a run-of-the-mill crime caper. But five minutes into the movie, one realizes it is anything but that. The movie is centred around a very serious issue that gripped the Goan landscape in the mid-eighties—the language battle between Konkani-speakers and Marathi protagonists. 

Not many know that between 1985 and 1987, Goa witnessed a protracted confrontation on the issue of Konkani or Marathi as protagonists on both sides came to blows over the official language issue in Goa. This had been a long-festering problem that had regularly come into the limelight since the Goan liberation of 1961. Between 1985 and 1987, the final chapter of this battle was fought.