Archive for August 16th, 2017

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.

Fascinating..

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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..


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