Archive for November 21st, 2016

Bank of England should resist appointing yet another “pale, male and stale” economist…

November 21, 2016

Mark Gilbert of Bloomberg View advises Bank of England to not look at  another male elite economist from London as its DEputy GOvernor. Instead it should appoint  a Female, Northern Brexiteer..

The Bank of England is advertising for a new deputy governor to start next year. As you’d expect, the job posting lists several desired features aspiring candidates should have. But let’s hope the winning applicant possesses some attributes not listed in the official job description; ones that would make the central bank’s monetary policy committee more representative of the community it serves. That might also help restore public faith in a valuable and somewhat beleaguered institution.

Research suggests managers typically prefer to hire people who remind them of themselves. So there’s a risk that the recruiters for the 270,000 pound-per-year ($335,000) role will opt for yet another white, male economist. That would be a mistake, and a missed opportunity. Given the recent assaults on central bank independence and criticism that monetary policy has disadvantaged huge swathes of the electorate, it’s more important than ever that policy makers reflect the diversity of society as a whole.

Here, then, are some of the attributes the government should be looking for as it trawls through the applications for this prestigious post.

  • Shatter the Glass Ceiling (select a woman)
  • Location, Location, Location (No more Londoners please)
  • Brexit Means Brexit (someone who believes in Brexit)
  • Hire an Entrepreneur, Not an Economist (well well well)

The last bit is an egg on the face on econs:

The advert says the successful candidate “will have an advanced understanding of economics.” I’d argue that professional economists are increasingly having to admit that even they don’t really understand what makes economies tick. Given the amount of time the new deputy governor will be forced to spend in the company of other officials — “He or she will be a member of the Monetary Policy Committee, the Financial Policy Committee, the Prudential Regulation Committee, the Court of the Bank of England and will also represent the Bank on several international bodies,” the job description states — it might actually be more helpful if they are not a professional economist so they can resist groupthink and bring a different experience and viewpoint to the discussion.

I’ve argued before that the lack of businesspeople on monetary policy boards is a serious shortcoming. No-one understands the labor market and the economy quite like someone who’s built a business from scratch. Nothing focuses the mind quite like having to make payroll on a Friday. Conservative lawmaker Andrew Tyrie, who heads the Treasury Select Committee, said earlier this week in a discussion about central bankers that “their capacity to create a theology is virtually boundless.” He’s absolutely right. Given the newfound enthusiasm among central bankers for all things blockchain, perhaps a bitcoin entrepreneur is the ideal candidate.

As well as having well-rounded and diverse personalities, monetary policy makers should empathize with the interests, desires and ambitions of their constituency. (Governor Mark Carney revealed under interrogation by a gang of schoolchildren in September that the culinary television program The Great British Bake Off is his guilty pleasure.) The next deputy governor doesn’t need to be a fan of fondant fancies and three-dimensional gingerbread structures, but being aware of cultural context doesn’t hurt.

At this point, it would be nice if I could at least come up with a shortlist of candidates for consideration. Unfortunately, the world of business and finance remains a white male bastion; only seven of the U.K.’s 100 biggest businesses, for example, are run by women (see what I mean about the glass ceiling still being firmly in place?). I’m at a bit of a loss. But if you know anyone who fits the bill, the Cabinet Office is taking applications until midday Nov. 21.

Amazing times..

Understanding RBI Board’s role in Demonetisation 2016…

November 21, 2016

This is a great time to learn about role of law in monetary affairs. It is so crucial as we will see.

One question that is central to the demonetisation strike is “What gives government the powers to declare legal tender illegal?”

These powers come from RBI Act. Not surprisingly, the act was made by the British government and we have just followed! They ensured that amidst all this legal language which shows an independent central bank, the power to make a currency legitimate or illegitimate remains with the government.

Section 26 (2) of RBI Act gives these powers:

(2) On recommendation of the Central Board the [Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender 2[save at such office or agency of the Bank and to such extent as may be specified in the notification]. 

It says on recommendation of the Central Board government may declare a currency as illegal tender by issuing a notification in the Gazette of India.Why Gazette? Well it contains all the notices of the government. One can see the Gazette notification on 8 Nov 2016 here and here.

If you notice it says “On recommendation of the Central Board….” this can be done. What is the Central Board? It is the main body of RBI which governs the central bank and has 21 members . These directors are divided into official and non-official:

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Indore Patna Express Accident: Indian Railways thinking of changing default option for passenger insurance..

November 21, 2016

What a tragedy on early Sunday morning (20 Nov 2016). It was just shocking to see the pictures.

One just realises the importance of insurance when such accidents happen. The Government had started this really laudable insurance scheme which costs just 0.92 paisa to safeguard passengers. However, due to ignorance and discounting of the accident only 126 of the 429 passengers had availed of the insurance. Those who did will get additional Rs 10 lakhs in case of permanent injuries and so on (detailed conditions here).

The question is why is it that so few opted for the insurance in this train? I am sure same would be the case across most journeys. The problem is default choice. The question railways asks is whether you want insurance or not. The railways is thinking of changing this default question.

 

Indian express explains:

The accident Indore-Patna Express met on Sunday will be the first real test of the recently-launched optional travel insurance scheme for train passengers. Thanks to the scheme, the family of the insured deceased will now get Rs 10 lakh over and above other compensation announced. Railways is now mulling a proposal to make the travel insurance default for each e-ticket booked unless a passenger opts out, sources said.

By Sunday evening, representatives of three insurance companies, ICICI Lombard, Royal Sundaram and Shriram, were on their way to the mishap spot, sources in the Indian Railway Catering and Tourism corporation (IRCTC), which anchors the scheme for Railways, said. They will assess the total payout in claims, which will be in crores.

This is where defaults in choice selection matters and is straight from behavioral economics toolkit.

So far default is “Do you want to buy insurance?” If yes then you tick the box and  0.92 paisa is added to the fare per passenger.

Now the railways is thinking of changing the default to ” You are being charged for 0.92 paisa for insurance? Do you want to opt out of the scheme?” If yes, then you cancel the tick and the amount is deducted from the fare.

If possible, the railways should not wait and add a choice on booked tickets as well. People who book should be asked to keep the really small change and pay the Ticket examiner. This is a time when change is in shortage but people will produce it to safeguard  against this rare but huge risk. (This suggestion is coming as the blogger is guilty of not availing the insurance as well…)

Questions over Indian central bank role in demonetisation rising…

November 21, 2016

I had worried about this aspect very early on. It is strange that not a word has come from Indian central bank on the decision except for confusing notifications. This is such a matter that no talk only creates more suspicion around the problem. If the Governor is reticent and fighting behind the scenes, why not appoint someone else to do the talk? I mean someone has to say atleast something.

 

Now, we have questions like: RBI’s silence on demonetisation raises questions on its independence. Even worse, the Bank Officers’ Union demands resignation of RBI chief given the chaos.

I am really surprised no banker/policy expert etc has made this request. Tons of paeans were sung by one and all on the appointment and more funnily connecting all kinds of powers to the central bank. Even post demonetisation, similar experts hailed it as one of the best moves ever. None have asked now why is the central bank not speaking on the matter? If RBI is not saying things as it has been kept off the loop and so on, then it is even a more serious matter.

The favorite topic of RBI independence has suddenly disappeared when it matters quite a bit. For all you know, one of the most reputed newspapers is reporting that PM indicating a rate cut post the strike yesterday. We would imagine such news coming from central bank and atmost from FM who can at best say – one wishes RBI does cut rates.

I mean reports saying that post demonetisation case for rate cuts has increased is like a joke.  The entire effort and noise around so called central bank reforms and making our policy like a developed one has become almost a joke. It looks more a case of monetary policy being run from Delhi now…

Demonetization links (21 Nov 2016): Impact on Northeast states, UP Small business, Bovine feeding and many more..

November 21, 2016

We are in such times, that one has to add a disclaimer: Assuming atleast some of these news is true!


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