Archive for November, 2016

Meanwhile meet Norway’s new bank notes…

November 22, 2016

Norway has announced launch of new notes as well. But hardly as disruptive as we have done. These notes will come into circulation in Summer of 2017.


Demonetisation 2016: The notification on withdrawing cash for marriages…(recovering lost art)

November 22, 2016

One was assuming whether Indian government has lost the art of writing detailed notifications which they wrote so often before the 1991 era.

In those days, everything for you was planned by the government and written painstakingly in the notices. The language and details stunned one and all as it was so meticulously written. One  often asked how is it that Government knows so much about me which I also don’t know. But then such were the times.

With all this liberalisation and markets, one would have thought this art too would have been lost somewhere. More so in the twitter and whatsapp generation where brevity is of utmost importance, who has time to think and write in such details.

But one is wrong. If the recent RBI notification is to be believed, the skills are intact.




Demonetisation Links (22 Nov 2016): 8 myths, Shimla hotels, Chickpet shops and many more

November 22, 2016

Usual disclaimer applies (request visitors to add to the list as and when in comments):

Economists are partly responsible for US President-elect Trump’s victory

November 22, 2016

Dani Rodrik who has been warning on the uneven outcomes of trade liberalisation for a while just blasts economists in this piece. Years of hubris and imperialism is finally getting to the den of American economics. First the global financial crisis and now the recent US elections.

He says we always think those who speak for trade are angels and those against are these barbarians at the gate:

Are economists partly responsible for Donald Trump’s shocking victory in the US presidential election? Even if they may not have stopped Trump, economists would have had a greater impact on the public debate had they stuck closer to their discipline’s teaching, instead of siding with globalization’s cheerleaders.

As my book Has Globalization Gone Too Far? went to press nearly two decades ago, I approached a well-known economist to ask him if he would provide an endorsement for the back cover. I claimed in the book that, in the absence of a more concerted government response, too much globalization would deepen societal cleavages, exacerbate distributional problems, and undermine domestic social bargains – arguments that have become conventional wisdom since.

The economist demurred. He said he didn’t really disagree with any of the analysis, but worried that my book would provide “ammunition for the barbarians.” Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.

It’s a reaction I still get from my fellow economists. One of them will hesitantly raise his hand following a talk and ask: Don’t you worry that your arguments will be abused and serve the demagogues and populists you are decrying?

There is always a risk that our arguments will be hijacked in the public debate by those with whom we disagree. But I have never understood why many economists believe this implies we should skew our argument about trade in one particular direction. The implicit premise seems to be that there are barbarians on only one side of the trade debate. Apparently, those who complain about World Trade Organization rules or trade agreements are awful protectionists, while those who support them are always on the side of the angels.

In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas. The pharmaceutical firms pursuing tougher patent rules, the banks pushing for unfettered access to foreign markets, or the multinationals seeking special arbitration tribunals have no greater regard for the public interest than the protectionists do. So when economists shade their arguments, they effectively favor one set of barbarians over another.

Well, the problem with economics is removal of history and political thought. Trade supporters often quote Adam Smith to support their ideas but forget how Smith was mindful of politics around the ideas.

The seeds of elitism were sown long ago and now is the time to reap the fruits…

Econometrics and its consequences for human beings..

November 22, 2016

Marco Fioramanti and Robert Waldmann have a timely post cautioning on the huge usage of econometrics in policy. If one is not careful, then chances of being conned and taking bad policy decisions could be huge.

The post is technical and authors could have simplified the post for a better reading:

The basic idea is how different econometric models produce different results. They show analysis for Italy:

The difference in the structural balance calculated by the European Commission and the Italian authority can easily be produced by tweaking the second or third decimal point of variance bounds imposed on the stochastic processes driving the NAWRU. Do we really want these technical aspects of an estimation procedure – the uncertainty of which is huge and cannot be removed given the unobservability of the underlying phenomenon – to be the key element on which we base our decision on Italy’s fiscal strategy in a time when a still high unemployment rate and humanitarian emergencies require the support of government’s actions?

One should be very careful with usage of econometrics and even more while giving policy reccomendations based on the models. The assumptions and limitations should be clearly specified.

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:


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!

RBI said no to demonetization during UPA-II..

November 18, 2016

As this blog wrote, one just hopes that RBI had cautioned the government against the demonetisation move. I mean with such small scale of demonetisation, RBI warned against monetary stability in both the previous instances. This time with such large scale demonetisation, no central bank independent or dependent should have let the government do it this easily. The mess should have been foreseen by someone who is not even an expert on these matters.

Though, having said all this things look murkier as days pass by. KC Chakrabarty, former DG of RBI spills the beans further. In this interview, he says RBI was asked earlier as well. The proposal did not even move to the Board level !

You were the deputy governor of RBI when the UPA-II government was at the centre. Was there any such proposal from the government during your tenure?

Yes, it had come from the UPA government. After examining the proposal, we had said that this should not be done. The proposal never went to the board level.

Was it a formal proposal? What was the reason for declining it?

Whether it came officially or over telephone, is not the issue. But I definitely remember it had come. We said ‘no’ because it does not serve any purpose… the cost is high and the benefit is less.

It has already impacted the banking system. For the next couple of months, banks will only concentrate on exchange of notes, no business can happen.

This is huge and comes at a very bad time for RBI. Why? RBI Act 1934 says:

26. Legal tender character of notes.
(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in 4[India] in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government].

(2) On recommendation of the Central Board the 1[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 save at such office or agency of the Bank and to such extent as may be specified in the notification].

One imagines the amount of demonetisation would be small as suggested by previous Government. This time the operation was very secretive and obviously RBI board was not informed. But there was no ordinance either. Even in previous demon in 1978, RBI board was hardly kept in the loop but there was an ordinance as per the Act.

All this is getting too murkier.

Further Dr Chakrabarty says this move was rejected as it did not help in anything:

What is your view on the ongoing demonetisation exercise?

It has no economic rationale. It does not serve any purpose.

Why do you say so? The government claims that the move is aimed at curbing black money…

What is black money? No notes are black. All notes are white. It is the process that creates the black money. When a person does not pay tax, it becomes black money. Here you are killing the notes and not the fellow who is not paying tax.

The government also argues it will address the issue of counterfeiting…

If you buy a kilo of rice, there will be some small stones (interspersed). What you do is remove those particles and not the entire rice. The law enforcement authorities should identify those notes and take action. Here people are standing in the queues to get their own money because there are inefficiencies with the income tax (process), police machinery etc.

I am not aware of the thinking of the current government… I don’t know what information they have. I don’t know if they have the information that 90 per cent notes are counterfeit. I do not have this information. If they have the information then they should tell the people. They must disclose, per million pieces of Rs.1,000, how many counterfeit notes there are.

Much of these ideas from a former central banker have been echoed in this blog too…

Demonetisation 2016 links: Occupy RBI, Temples learning banking, Children’s bank helping parents etc..

November 18, 2016

Demonetization 2016 links: Black money expert’s take, Deaths, Banker’s tales, cashless villages and much more

November 17, 2016
  • There was this nice joke circulating on whatsapp saying how post demonetisation, number of economists had risen. This was shown via a graph. It is all so confusing at the moment. Don’t bother. Read this interview of Prof Arun Kumar whose work has been on black money. He says we have made progress and should tread slowly on such tricky matters. He discusses things like black income, black wealth etc.

Manas Roshan: Do you think the Modi government’s decision to demonetise large currency notes will curb the flow of black money or illegal wealth?
Arun Kumar: This will demobilise the stock of black wealth or a part of it, but it will not stop the flow. Because for that you’ve to stop black income generation. What happens in an economy is that you have an income, which you save, and savings are what accrue to form wealth. Income needs to be distinguished from wealth, and black money should be distinguished from black income. Black money is only a small part of the black wealth that has been accumulated.

MR: Can the effect of such a move be quantified?Data released by the Reserve Bank of India(RBI) in 2016shows that over 80 percent of the currency in circulation is in the form of Rs 500 and Rs 1000 notes, which is about Rs 13 lakh crore.
AK: Of Rs 13 lakh crore, at least half would be used in businesses: petrol stations, railway stations, airports, etc. What may be held in households may be only 5-6 lakh crore [rupees]. Now, assuming that the top 3 percent of the population owns much of the black wealth, that would amount to only Rs 1.5 lakh held per person. So the immobilised cache of black money is just Rs 2-3 lakh crore.

According to my calculation, which will be out in [the journal] the Economic and Political Weekly, the black economy increased to 62 percent of the GDP [gross domestic product] by 2013, which is Rs 90 lakh crore [A 2014 National Institute of Public Finance and Policy report estimated that domestic black money was equal to 70 percent of the GDP—approximately 90 lakh crore].That’s why my estimate was that the black “money,” or cash component, immobilised is only 3 percent of the total black income generated this year.

Black income generation will continue because there are a large number of mechanisms by which it is generated, which may or may not depend on cash circulation.

Demonetisation 2016: Conspiracy theory and the secret world of currency printing..

November 17, 2016

This blog had earlier posted on who prints currency is such an important but ignored issue. The  post was amateurish given the depth of the issue.

This article adds fuel to the fire and revives the whole debate.  Who is behind the secret world of printing:

The recent decision to discontinue the Rs 500 and Rs 1000 notes and introduce the Rs 2000 notes was taken with a view to curbing financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy. However, are our new currency notes printed with the involvement of the same blacklisted companies that infact were the source of fake notes to Pakistan in the first place?

As per a recent report by Economic Times,

[The notes]were largely printed at Mysuru under utmost secrecy while the paper note on which the printing was done came from Italy, Germany and London. The printing, according to officials, began in August-September and nearly 480 million notes of Rs 2,000 denomination and an equal number of Rs 500 denomination were printed. The printing facility at Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) in Mysuru under Reserve Bank of India was set up with the De La Rue Giori, now KBA Giori, Switzerland.

The Hindu reported,

India imports bank note papers from European companies like Louisenthal in Germany, De la Rue in United Kingdom, Crane in Sweden and Arjo Wiggins in France and Netherlands. India had blacklisted two European firms in 2014 amid reports by security agencies that the security features, which come embossed on bank note paper, were compromised and given away to Pakistan.

But the ban was lifted and the companies were removed from the blacklist. Why? Here is the reason given for the lifting of the ban.

“These companies are in the business for 150 years; they will not hamper their trade by passing on information of one country to another. Some of these firms even print currency notes for smaller countries. After the investigations, it was found that the two firms had not compromised the security features and the ban was lifted,” said the official.

However the Serious Fraud Office (SFO) of UK itself in their inquiry had uncovered that a number of De la Rue employees had deliberately falsified certain paper specification test certificates for some of its 150 clients. Recently it was also revealed in the Panama Papers that De la Rue paid out a 15% commission to a New Delhi businessmen to secure contracts from Reserve Bank of India. There are also reports that De la Rue paid £40m in settlement to the RBI for issues in production of paper notes.

Even so after all this it has been given clearance and there are even plans in discussion with De la Rue for setting up of a security paper mill and a research and development centre of identity software in Madhya Pradesh. Martin Sutherland the new CEO of De la Rue in an interview titled Giving Make in India the Currency to Succeed with India Investment Journal said that under the UK-India Defence & International Security Partnership Agreement which was signed in November 2015, De La Rue is committed to supporting both governments on the subject of counterfeiting under this agreement.

Some people might ignore this saying one is just picking a story for the sake of it. Not at all. This is a huge issue.  The printing of currency notes is a hugely secretive business and no one really knows how things are worked out. Given so few firms know how to print these notes, they know the details of currency design of most countries:

The high-security currency printing and technology business is dominated by a few Western-European companies. In his book Money Makers – The Secret World Of Banknote Printing author Klaus Bender offers a detailed view of the banknote industry and its modus operandi by removing the industry’s carefully imposed shroud of secrecy. The only previous attempt to reveal this story was published in 1983 by an American author, Terry Bloom in his book “The Brotherhood of Money – The Secret World of Banknote Printers”. The entire edition of that book was bought up – straight from the printing presses – by two prominent representatives of the industry to prevent the public from getting an inside view of the business.

The four major segments in the currency business are paper, printing presses, note accessories, inks and lastly integrators who provide total, end-to-end currency printing services. It is believed these businesses are tightly run by not more than a dozen companies operating out of Europe. These companies are believed to be operating since the 15th century. De la Rue’s history goes even further back to the company’s plant near Bath which has been a mill operating for 1,000 years.

De la Rue was the official Crown Agent of the British Empire who still prints banknotes for the Bank of England. Crown Agents ran the day-today affairs of the Empire. In his book Managing the British Empire: The Crown Agents author David Sunderland explains how the Crown Agents printed the stamps and banknotes of the colonies; provided technical, engineering, and financial services; served as private bankers to the colonial monetary authorities, government officials, and heads of state; served as arms procurers, quartermasters, and paymasters for the colonial armies. In effect, Crown Agents administered the British Empire, which at one point in the 19th Century, encompassed over 300 colonies and nominally “independent countries” allied to the British Crown.

Later the Crown Agents’ office was set up, under the supervision of the Secretary of State for the Colonies, in 1831 to consolidate the activities previously undertaken by a number of agents of varying efficiency and probity. This was done to properly manage the budding Industrial Revolution that destroyed the traditional Indian markets and economy.

The first colony allowed to issue government notes was Mauritius, which in 1849 began to distribute rupee notes. No other colony was permitted to follow its lead until 1884. Colonies were required to obtain notes from the Agents, who passed orders onto the printing firm De la Rue.

As per official history the bank note printing in India started in 1928 with the establishment of India Security Press at Nashik by Government of India. Until the commissioning of Nashik Press the Indian Currency Notes were printed from Thomas De La Rue Giori of United Kingdom.

Even after Independence, for 50 years, Free India printed its rupees on machines bought from De La Rue Giori, run by the Swiss family Giori and till recently said to control 90 per cent of the banknote printing business. But than something happened at the closing of the 20th century that changed everything.

There is also a very interesting discussion on Kandahar Hijack and printing.

I have written on this blog earlier that politics around fiat currency is highly important. Given government’s complete monopoly over currency across the world and such few currency printers around the world, one wonders what must be the discussions? How does these small number of firms manage to keep details of so many countries secret from one another? This is such a murky world straight out of Dan Brown novels.

Governments very cleverly twist all this agenda. They first design currencies to give and arouse nationalistic feelings around notes. Then they classify their own currencies  as black and white and harass people. Whereas the real issues are all behind the scenes of money designing and creating…

Demonetisation 2016: How notes and votes are crucially linked in India…

November 16, 2016

As the demonetisation was announced on 8 Nov 2016 evening, there was a good joke saying that as US counts votes, India counts notes!

However in India’s case, both votes and notes are so crucially linked. America stopped counting votes but we are counting both votes and notes. It is an amazing swap arrangement whose scale and mechanism pales the swaps run in the financial market. The votes get you notes later. So you spend notes now to get votes.

One is already hearing stories that local politicians and other powerful people are controlling or trying to control the bank branches. People on news channels are allegating the same. So we have moved from booth capturing to branch capturing.

If there was any doubt about the linkages between the two, they have been confirmed by this announcement. Now, in order to get notes, one has to get his/her finger inked. A bank branch is nothing but a voting booth.

The RBI press release shows you how detailed thinking is gone behind the inking:

Standard Operating Procedure (SOP) for putting indelible ink on the finger of the customers coming to a bank branch for SBNs

Please refer to our Circular No. DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 on the captioned subject. Based on feedback received from various quarters, it is felt that there is a need to put in place a Standard Operating Procedure (SOP) for such exchange of Specified Bank Notes (SBNs). Accordingly, ROs are advised to put in place the following measures.

  1. While exchanging the SBNs, the concerned bank branch and post offices would put indelible ink mark on the right index finger of the customer so as to identify that he/she has exchanged the old currency notes only once.
  2. The indelible ink would be supplied to the bank/post offices by IBA in coordination with the banks and consultation with RBI.
  3. This procedure would be introduced to begin with in the metro cities and expanded to other areas later.
  4. Each bank branch will be provided with black indelible ink bottles of 5 ml each. The cap of the bottle includes a small brush for applying the ink.
  5. The indelible ink can be applied by the cashier or any other official designated by the bank before the notes are given to the customer so that while the exchange of notes is taking place, a few seconds elapse which will allow the ink to dry up and prevent removal of ink.
  6. Indelible ink on the index finger of the left hand or any other finger of the left hand may not be used as a pretext to deny exchange of old notes.

Specifying details as right index finger and so on. The third one even mentions 5 ml bottle with a small brush!

This is all becoming so much a political ground. One is not sure whether you are a noter or a voter.

When railways measured the weight of your luggage as you do in airports today…

November 16, 2016

Yogesh Kabirdoss of ToI has a nice piece from history. He points how weighing scale mattered much in rail journeys earlier:

In the pre-independence period, it was an essential part of rail travel, but decades later its importance, use and history have to be ferreted out of archives and dusty journals on railways. Displayed in full public view at the Saidapet railway station, the weighing scale of yore, which made people choose between a suitcase full of clothes and a bag of utensils, is now just a slab of iron attached to a curious looking pole.

While the weighing scale lies forgotten almost becoming part of the platform like its multiple pillars and benches, serving as a resting place for tired feet, only a discerning eye can probably find the engraving `H Pooley & Son, Liverpool & London’.

The firm introduced railway weighbridges in 1835. History enthusiast K R A Narasiah says weighing machines were manufactured by the UK firm for South Indian Railway.  “Every suburban station in Chennai had a weighing machine pro cured from Liverpool and London during the British regime. It was meant to weigh goods, and passengers carrying excess luggage were made to pay up,” he said. 

The machines acted as a deterrent for carrying heavy goods by train. “With trains being the quickest mode of transport in those days, people from villages around Chennai had the tendency to take maximum belongings. Weighing machines helped to keep a check,” he said. It is not known when the scale on the Chennai BeachTambaram section was installed.

 However, weighing machines started losing relevance over the years. “In the past, rice and grains used to be transported by (suburban) trains, but this practice has gradually reduced, minimising the necessity of weighing machines,” Narasiah said.
Hmm…Nice bit..

Does this demonetisation drive undermine so called RBI independence?

November 15, 2016

I am surprised no one is asked this question yet.

History of two previous demons tell you that both the times, RBI chiefs had reservations about the idea. It still went through, as government is the final boss. The real fear for RBI was the move could destabilise the economy for what were perceived as fiscal and political goals. In 1946, RBI chief thought the exercise was aimed at increasing taxes and in 1978, he said it was on political grounds!

We really do not know what RBI views have been on a demonetisation exercise as big as this. In 1978, it juct knocked of 0.8% of currency and still RBI was worried. This time more than 100 times of the amount or 86% has been knocked off  and we do not know how central bank reacted to the initial idea. The key persons of RBI were involved in the secret planning (which has been inadequate to say the least) of the event. So, it is not as if they were kept off the loop. But since the whole thing was secretive, one does not know how much details will be shared when history of this period is written in future. This is as big a moment in India’s monetary history as any but may be we will never know,

However, one thing is really puzzling. How is it that the central bank has agreed to go ahead with this hammer of a tool to control/manage ills of the society (if one can call it that) at such a large scale? Did the Government completely ignore caution or warnings made by RBI on this matter? Or RBI just gave into Government’s demands?

All this is important as no one cared about central bank independence or autonomy in 1946 0r 1978 when last demonetisations were done. It matters a lot now. Perhaps it is the only thing that matters in debates around central bank – it should be independent. We all celebrated when the new RBI Governor was appointed using all kinds of adjectives and finally saying thank god, RBI will remain independent given the credentials of the new Governor!

Though, this blog has never really cared much for independence noise as one knows that the final call is that of the govt. But there are certain matters where central bank has to strongly oppose or warn even if it has no independence as earlier ones did. Now we think it has independence so one just hopes there is enough defense of the turf.

One is already seeing some signs of people questioning all this. In this piece, Ashok Swain says:

The decision of withdrawing Rs 500 and Rs 1000 notes in such an abrupt manner was Modi’s alone. Like many other important decisions of his government, on this one too he had not taken his acquiescent cabinet into confidence.  He even handpicked a pliant Reserve Bank of India governor to go along with him in his precarious choice.

Ila Pattnaik says this decision puts the recently constituted MPC into a puzzle:

There is a widespread sense that the decision of the government is bad news for bad people but for the rest we will be fine. This thinking may be too complacent. In the last few months, RBI, government, the newly constituted MPC and many observers have realized that demand in the Indian economy is weak and there is a need for monetary easing. 
In the decades before the policy rate was used for monetary policy, the main instrument of monetary policy used to be money supply. Now we have got a huge reduction in money supply. The timing of the monetary tightening is inconsistent with the stance of monetary easing. We expect that this sudden tightening will negatively impact production in the quarter Oct-Dec 2016. 

She does not question independence per se, but the MPC easing has created a really awkward situation. What does it do in next meeting?

Though, section of markets are believing it makes the case for rate cuts given slipping demand etc. I mean it is getting so bizarre. You ease with rates, then tighten the supply suddenly and then again ease rates as economy is not generating demand.


A good friend and regular follower Mumbai Paused told me someone did ask the question. RBI staff itself!


Demonetisation 2016 Links: A banker runs away with new currency notes, development of barter system

November 15, 2016

The links keep piling on and on. All links mostly from Times of India which is doing a great job of pulling news from different corners..

Impact of demonetisation on RBI Balance sheet in 1978 and gauging trends for today…

November 15, 2016

Just following up with several posts on demonetisation. This blog could be renamed as mostly demonetisation!

The earlier posts discussed with some ideas like impact on RBI balance sheet. Tried to make later ones with more data and facts like history of demon in India, trends in counterfeit currency.

So, in the earlier post on impact on RBI balance sheet, we just discussed broad ideas. Here we try and see what happened in RBI B/S in 1978 with proper numbers (By the way, here is a copy of the 1978 ordinance). We will also try and see what can happen in RBI’s balance sheet based on what happened in 1978/

Another warning. This is a long long post!


Many mistrust banks, but why you mistrust banks says a lot

November 15, 2016

Erica Vause, Assistant Professor of history at Florida Southern College writes on this dilemma on banking. Banks run on trust but remain on of the mistrusted organisations. Why is this so?

Since the early 19th century, banks have thrived, and are foundational to modern economic life. Yet the ambivalence surrounding them has not dissipated. Over the course of the 19th century, the ideal of the independent property-owner, upheld by the classical republicans, gradually faded. Instead, factory labour became the ideal form of ‘real’ value, beside which finance seemed dubious and fictional. The heroes of many 19th-century novels, such as Elizabeth Gaskell’s North and South (1855) and Anthony Trollope’s The Way We Live Now (1875), preferred the ‘real’ work done in factories to the ‘fictional’ and often dangerous fortunes to be reaped from financial speculation.

Viewed in light of this long history, present-day distrust of banks, so salient since 2008, appear less as novel reactions to our changing times than as the latest chapter in the long-running paradox of trust and credit. On a day-to-day basis, most of us trust banks well enough. We’d prefer to deposit our money in a bank account than, say, stuff it in a mattress. Yet no single capitalist institution compares with the bank in terms of the sheer amount of unease and antipathy it engenders. Polls show that a mere 18 per cent of Americans trusted banks in 2010. The 2015 Edelman Trust Barometer, a yearly survey of attitudes across 27 industrialised nations, indicated that, among major industries, only the media is less trusted than banking and finance.

Suspicion of banks today traverses the political spectrum. Different political viewpoints tend to linger on different aspects of the original critiques of the banks. The Left sees finance as integrally connected with a parasitic elite of largely idle profiteers. Much like the classical republicans of yesterday, they see banks as guilty of fabricating fictitious value and avoiding ‘real’ work. The Right portrays banking as a threat to personal or national sovereignty. They evoke the classical republicans’ anxiety about banking and despotism. In the United States, for example, conservative commentators such as Glenn Beck and Ron Paul have not only charged the Federal Reserve with causing inflations and depressions, but denounced it as an instrument of tyranny. Outside mainstream discourse, conspiracy theories about the banks are often tinged with anti-Semitism. Try searching for ‘banking’ on YouTube. In these conspiracy theories, rumours such as the one about the Rothschilds and Waterloo thrive.

No institution more clearly relies on trust than the bank. That is precisely what makes banks a lightning rod for suspicion. From the time modern banking emerged, it has been the subject of intense misgivings. Many of these suspicions are with us still. How and why one mistrusts banks, however, tells us a lot about the way one sees the world politically.

This is all very interesting aspects of banking and finance.

Given what is going on in India at the moment, it is not difficult to see rise in mistrust in banks.  Earlier they impacted lives of the big and mighty, now they impact life of one and all.

%d bloggers like this: