Archive for December 6th, 2016

When South Korea printed currency for India (and other Asian countries)…

December 6, 2016

The industrial organisation of currency printing industry is indeed fascinating and full of conspiracy theory. So far the basic impression was that most of currency printing was done by Europeans.

Not really as South Korea too is part of the game.

Sojin Shin, a research fellow at the National University of Singapore has a fascinating piece in EPW on this:

Many Asian countries in the 1980s lacked sufficient currency. In most cases, the shortage stemmed from not only the lack of technology to establish mints but also the lack of capacity to produce sufficient high quality currency.

In the currency shortage crises, South Korea was the leader of exporting banknotes and coins to many countries in Asia. Considering that importing domestic currencies from foreign countries may involve financial security setbacks, South Korea exporting currencies at that time meant two more things beyond its obvious success in business. First, South Korea’s moneymaking technology was advanced enough to compete with other Western countries exporting currencies to Asia. Second, the bilateral relations between South Korea and the Asian countries that requested money production had to be based on trust.

There was a domestic currency shortage in the 1980s in India. The Government of India (GoI) needed to import coins to cater to the demand of the people. Three mints—Hyderabad, Bombay, and Calcutta—were producing coins at that time, but their capacity did not meet requirements. They produced 525 million coins in 1981–82, 650 million pieces in 1982–83, and 1 billion pieces in 1983–84. The GoI targeted to provide 2 billion coins in 1985. However, the capacity of the three mints was only around 1.3 billion pieces.

The lack of capacity to produce coins became the trigger for the Coinage (Amendment) Bill in 1985. Vishwanath Pratap Singh, the then Minister of Finance and Commerce proposed the Coinage (Amendment) Bill in Parliament to import coins from foreign countries (GoI 1985). Many of the members of Parliament (MPs) criticised the government’s inability to address the issue. They pointed out that the Reserve Bank of India (RBI) did not adequately lift coins from the mints. The shortage of coins meant that the weaker section of citizens using them more often encountered difficulties. The proposition made some MPs more upset over the agenda. Further, MPs were worried about financial security, as minting of coins in other countries may lead to currency smuggling.

Despite these concerns, the GoI decided to import coins from other nations to meet the target of securing 2 billion coins in 1985–86. Three foreign mints were asked to produce coins for India: Birmingham Mint in the United Kingdom, Korea Minting Security Printing and ID Card Operating Corporation (KOMSCO) in South Korea, and Royal Canadian Mint in Canada. Table 1 presents the number of coins imported from the three foreign countries to India during the period 1985–87 (GoI 1988). The total cost for the imported coins was around ₹300 crore at that time.


Likewise Koreans printed notes for Bangladesh (first contract) and then did tech transfer of currency printing to Bhutan as well.

In then end, we must remember “Made in Korea” notes are critical when it comes to diplomacy:

South Korea’s moneymaking technology was well known not only in South Asia but also in other Asian countries such as China, Philippines, Thailand, Indonesia, and Singapore. KOMSCO exported $72 thousand worth of 1 and 5 yuan coins to China from 1973 to 1982. For the Philippines, it supplied seven types of government stamps from 1972 to 1980. KOMSCO made a contract with the Thai government in 1985 to provide $720 thousand worth of banknote paper for 50 baht bills. It continued to export the banknote paper for 50 baht and 500 baht bills to Thailand until the early 1990s. In 1986, KOMSCO shipped 116 million pieces of three different types of coins—10, 20, and 50 cent—to Singapore.

South Korea’s exporting currencies to these countries at that time meant something beyond its success of business, because importing domestic currencies from foreign countries may involve financial security setbacks. It meant that not only was South Korea’s moneymaking technology of high standard, but it also meant that South Korea’s bilateral relations with various countries were based on trust. India, Bangladesh, Bhutan, and Pakistan were the countries in South Asia where “made-in-Korea” banknotes and coins were circulated. Further, South Korea’s moneymaking technology transfer to Bhutan was significant in a sense that possessing and producing unique national currencies is closely linked to national monetary strength.

Superb stuff.

Was Volcker disinflation actually Burns disinflation?

December 6, 2016

The hype of any policy usually has its precedents elsewhere.

This is a terrific paper by Thomas A. Lubik, Christian Matthes and Tim Sablik. They say that disinflation in 1980s was not due to Paul Volcker but started in previous tenure of Arthur Burns:


Globalization is a recent term, but internationalization of markets, people, ideas, and cultures is nothing new

December 6, 2016

Nice essay by Prof Harold James of Princeton Univ. on globalisation. 

He says the idea of international markets is really old.

Globalization triggers odd responses. Although almost everyone who thinks about it today agrees that a revolt against globalization is underway, many consider the fundamental process both inevitable and irreversible.

Is that true? A look back through history helps us understand the dynamics of revolts against globalization—the movement of money, goods, people, ideas, technologies, and cultures across frontiers.

The term globalization—in its modern meaning—was coined in the 1970s to describe the internationalization of markets, especially financial ones, after the oil price increases of the decade, but it reflects a much older reality. The recent period of globalization that seemed ascendant, at least until the global financial crisis, is but one of many such periods—and reversals—that dot human history.

The global financial crisis taught us that it is misleading—and dangerous—to rely on the analysis of economic “trends” derived simply by extrapolating a short data period. We don’t know how unusual or exceptional those data are. We’re also not aware of the complex nature of global interconnection. The shock of the unexpected crisis thus produced a new interest in looking at patterns derived from much longer time periods. Those older and longer patterns can highlight vulnerabilities that help us discover how we should adjust the institutional framework to make globalization more stable, less dangerous—and more just.

Why does globalisation reverse? He cites four factors – rise of protectionism, financial crisis, financial crisis leading to rethink over international monetary system and wars.

What are the lessons from glob?

At each stage in the globalization cycle, we tend to extrapolate from current developments and to think that this particular phase will last forever—whether it is the confident upswing or the stagnation and anger of the downward movement. A break in the upward trend then produces profound disorientation and disillusion.

In the aftermath of the recent global financial crisis, a logic similar to that of a century ago drove German and American bankers not only to want to reform their financial institutions, but to think about a new financial and economic shape for the world. The United States, although the original epicenter of the 2007–08 financial crisis, pulled through better than other advanced industrial areas because of the depth and sophistication of its financial system. The experience has prompted broad discussion in Europe and Asia of ways to emulate the sophistication and robustness of the American system, just as Germans and Americans sought to learn from the model of the city of London and the Bank of England after 1907.

As was true a century ago, different parts of the world focus on various lessons taught by instability. For Chinese policymakers, the central focus is on giving their country a much greater role in trade finance, with a rapidly increasing proportion of foreign trade denominated in renminbi. The Chinese are reproducing their version of the American debate at the turn of the last century about the use of New York rather than London trade acceptances.

One lesson for Europeans is the need for a more secure asset and a better market for government bonds, which would involve moving to a standardized European security that resembles the U.S. Treasury bill. This is the equivalent of the German discussion of a hundred years ago in the wake of 1907. Many European economists, as well as outsiders, see the virtue of the early American experience, when founding father Alexander Hamilton built the new republic around a consolidated national debt. But a standardized security demands internal political and constitutional changes in the European Union that may be difficult to contemplate—just as full development of Germany’s debt market in the early 20th century would have ultimately required much more extensive constitutionalization.

Nice bit..

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