ECB (and others) can take some lessons from India

FT points:

Lucas Papdemos, ECB vice-president, revealed this week that the central bank could set up a central clearing house for interbank lending in a bid to get money flowing again in the system and reduce costs to end borrowers.

The dearth of interbank lending, which is often put down to a lack of trust between banks, has made cuts in the main interest rates by the ECB and other central banks less effective because they are not directly reducing interbank lending rates, which govern the cost of ordinary borrowing.

Money Markets are frozen in many economies and am sure they would be looking to the ECB solution. In that case, ECB (and others) could take some lessons from India. India has set up CCIL:

The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, insulate the financial system from shocks emanating from operations related issues, and to undertake other related activities that would help to broaden and deepen the money, debt and forex markets in the country.

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5 Responses to “ECB (and others) can take some lessons from India”

  1. AcK Says:

    In my view, there is a hell lot that western monetary institutions could have learned from the response of monetary policy to rising credit growth… one of which is the way Mr. Reddy/RBI increased cash reserve ratio… I concede that it was as much a response to the appreciating rupee… but I do believe that forcing banks to keep higher amounts of cash in their books (and thus, resulting in tightening liquidity) was a key reason why banks were not able lend as freely as in US and UK (both of which saw a housing and asset boom, led by a strong credit growth for developed economies)… Overall, what I found most interesting in Mr. Reddy’s approach to monetary policy was to focus on varied instruments (repo, reverse repo, cash reserve, sterilization etc.) to achieve the desired response… this, by far, would be the most important learning for western monetary authorities from in India (that is, if they care)…

  2. Coordinating financial stability in EU and price stability in Germany « Mostly Economics Says:

    […] is already thinking of setting a central counterparty for money markets and would be looking at financial stability in much details after crisis settles down. Expect a […]

  3. Finance Blog » Blog Archive » Coordinating financial stability in EU and price stability in Germany Says:

    […] is already thinking of setting a central counterparty for money markets and would be looking at financial stability in much details after crisis settles down. Expect a […]

  4. RBI Dep. Governor proposes ‘nudge’ for better choices « Mostly Economics Says:

    […] RBI Dep. Governor proposes ‘nudge’ for better choices By Amol Agrawal Ms. Shyamala Gopinath, RBI’s Deputy Governor in her recent speech reviews the developments in India’s forex markets and how Indian policies have shaped up in the crisis. She also points to few lessons to be learnt from the crisis.  All these are pretty well known lessons but is a good reading for it has an Indian perspective.  For instance, she mentions how only now is the world waking up to the usefulness of setting up central counter-parties is key to promote efficiency and transparency and India always had a CCIL (I pointed this as well). […]

  5. current account Says:

    Thanks for the info./ ECB is already thinking of setting a central counterparty for money markets and would be looking at financial stability in much details after crisis settles down.

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