Archive for April, 2018

Sima Kamil: The extraordinary rise of Pakistan’s only female banking CEO

April 19, 2018

Nice story of Sima Kamil who heads Pakistan’s United Bank (why are bank names so similar across countries?).

Sima Kamil is a reluctant role model in Pakistan.

 The 61-year-old chief executive officer walks into a 21st-floor meeting room at United Bank Ltd.’s headquarters in Karachi and right away says she doesn’t want to be viewed as a “token” woman and would prefer to discuss the bank’s strategy. Yet she recognizes that as the only woman heading a private sector lender in Pakistan — and one of the very few women leading companies in the country — she has a responsibility that goes beyond her job.
 
“It’s a privilege and a burden at the same time,” she says in an interview in a building overlooking the sandstone school her father attended, amid the urban sprawl of the nation’s largest city. “They roll you out. I’ve tried to avoid that and it’s not always easy; some people feel I should do it because it’s part of my duty, so there’s a balance to be struck.’’
Kamil’s rise through the ranks of Pakistan’s intensely male-dominated banking industry in the conservative Islamic republic is nothing short of extraordinary. Her appointment last year was a further milestone in a country that became the first Muslim-majority nation to elect a female premier, yet where about one-fifth of all women marry before they turn 18 and many still face routine domestic violence and repression.
Lots more in the piece.
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70 Years On: Thoughts on Israel’s Imperfect Capitalism

April 19, 2018

Sami Peretz has a short piece on Israel’s 70 years of economic history which is quite similar to that of India.

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18th century Pretzel standardization

April 19, 2018

Nice post in Managerial economics on standardisation.

Pretzels, or bretzels, were an important part of the cuisine in southern Germany at least since the 12th century. Apparently, shirking on the size of pretzels could be a problem. The photo here is from Heidelberg and represents a solution adopted nearly three centuries ago. The size and shape of a ‘standard’ pretzel, about 10″ in diameter, was engraved onto the stones at the base of the central cathedral. If anyone suspected they were being cheated, they could place their pretzel on top of the engraving to verify if it was, in fact, large enough. This is an early example of the regulation of minimum quality standards.

BTW, pretzels in southern Germany (with a little butter) are delicious and Heidelberg is a lovely town to visit.

History of standardisation is really important to figure….

In photos: The slow transformation of a place into the capital city of Amaravati

April 19, 2018

S. Ananth in this photo essay shows how the capital city of Amaravati is shaping up:

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Understanding digital currencies via the money tree

April 19, 2018

The Czech central bank Vice Governor, Mojmir Hampl had earlier remarked:

the positive philosophical influence of bitcoin on the conservative world of central banking. True, it is far from clear that anytime soon a full-fledged digital currency (be it blockchain based or not) will be created by a central bank (some of you may be following the debate in the Riksbank in Sweden), but the last three years have seen an explosion of research on this idea in many central banks. Bitcoin must be credited for this powerful intellectual stimulus. When so many professors at the most esteemed universities of the developed world are not thinking about potential reforms of the current monetary order, we have received a stimulus from the libertarian IT guys instead. Fine.

The intellectual stimulus has been amazing as one is getting to read so much on money and its basics.

BIS researchers gave us the money flower:

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How Copenhagen avoided the car culture and keep its citizen-focused design?

April 18, 2018

Superb article in Guardian newspaper written in 2016. There is an entire series on cities which should be worth reading.

In this piece, how Copenhagen managed to keep its design of a pedestrian and bicycle friendly city. In 1960s, there was huge pressure on European cities to build this car culture as seen in American cities.  How Copenhagen avoided this and today it is seen as one of the ideal cities all other cities are trying to aspire to become.

Needless to say, the Indian cities destroyed their pedestrian and cycle friendly culture and have just become urban nightmares…

Superman at 80: How two high school friends concocted the original comic book hero

April 18, 2018

Prof. Brad Ricca of Case Western Reserve University has researched on Superman and shares her key findings in this piece.

The creators of Superman were from her region which prompted her to study why the superhero was created. The story behind the creation is as interesting and full of struggles:

In the mid-1930s, Jerry Siegel and Joe Shuster were two nerds with glasses who attended Glenville High School in Cleveland, Ohio. They worked on the school newspaper, wrote stories, drew cartoons, and dreamed of being famous. Jerry was the writer; Joe was the artist. When they finally turned to making comics, a publisher named Major Malcolm Wheeler-Nicholson gave them their first break, commissioning them to create spy and adventure comics in his magazines “New Fun” and “Detective Comics.”

But Jerry and Joe had been working on something else: a story about a “Superman” – a villain with special mental powers – that Jerry had stolen from a different magazine. They self-published it in a pamphlet titled “Science Fiction.”

While “Science Fiction” only lasted for five issues, they liked the name of the character and continued to work on it. Before long, their new Superman was a good guy. Joe dressed him in a cape and trunks like those of the era’s popular bodybuilders, modeled the character’s speedy running abilities after Olympic sprinter Jesse Owens, and gave him the bouncy spit-curl of Johnny Weissmuller, the actor who played Tarzan. It was a mishmash of 1930s pop culture in gladiator boots.

When they were finally ready, they started pitching Superman to every newspaper syndicate and publisher they could find. All of them rejected it, some of them several times. This continued for several years, but the duo never gave up.

When Superman finally saw print, it was through a process that is still not wholly clear. But the general consensus is that a publisher named Harry Donenfeld, who had acquired the major’s company, National Allied Publications (the predecessor to DC Comics), bought the first Superman story – and all the rights therein – for US$130.

 

The world was introduced to Superman in “Action Comics” No. 1, on April 18, 1938, with the Man of Steel appearing on the cover smashing a Hudson roadster. The inaugural issue cost 10 cents; in 2014, a copy in good condition sold for $3.2 million dollars.

When the comic became a runaway hit, Jerry and Joe regretted selling their rights to the character; they ended up leaving millions on the table. Though they worked on Superman comics for the next 10 years, they would never own the character they created, and for the rest of their lives repeatedly filed lawsuits in an effort to get him back.

There is another story of how Jerry paid tribute to his father in the comics. Thus, there is more to the Superman series:

Why is Superman’s 80th birthday important? It isn’t just about celebrating a “funny book” about a guy who has heat vision and can fly. It’s about using fantasy to make sense of the world, plumbing personal tragedy to tell a story, and using art to envision a more just and safe society.

Nice to know…

Income Inequality in France, 1900-2014

April 18, 2018

Thomas Piketty along with two more researchers figures inequality in his own country:

Bertrand Garbinti, Jonathan Goupille-Lebret & Thomas Piketty combine national accounts, tax and survey data in a comprehensive and consistent manner for France, to build homogenous annual series on the distribution of national income by percentiles, from 1900 to 2014, with detailed breakdown by age, gender and income categories over the 1970-2014 period. Their new series deliver higher inequality levels for the recent decades, because the usual tax-based series miss a rising part of capital income. Growth incidence curves look dramatically different for the 1950-1983 and 1983-2014 periods. They also show that it has become increasingly difficult to access top wealth groups with labor income only. Next, gender inequality in labor income declined in recent decades, albeit fairly slowly among top labor incomes. Finally, they compare the evolution of income inequality between France and the US.

It has some interesting charts which show the evolution of inequality. US has much higher inequality than France..

Meanwhile, a leadership change at the Rothschilds…

April 18, 2018

Via this story:

Alexandre de Rothschild, 37, will replace his father as chairman of the famed Rothschild investment bank, the group said on Tuesday, with Rothschild keen to keep its leading position in France amid growing competition. Last month, Rothschild reported higher annual profit and revenues, buoyed by its advisory work.

However, Rothschild faces increasing competition, with rival Lazard hiring more staff and Perella Weinberg Partners also looking to open an office in Paris.

The official press release is here.

So much of history behind the firm…

 

Why are Karnataka’s religious mutts so powerful?

April 18, 2018

Anyone watching upcoming elections in Karnataka will notice the power of the religious mutts and how the political parties are trying to impress them.

K. Giriprakash of Hindu Business Line tries to figure the reasons:

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RBI’s woes spreading from banking regulation to cash management..

April 17, 2018

It is quite surprising how cash crunches are becoming common since Demonetisation in Nov-2016. We also have issues of some denomination of currencies are not accepted like Rs 10 and small amount coins.

It is for nothing that scholars who studied money and its history advised never to interfere with money. For instance, Milton Friedman quoted John Stuart Mill:

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Cash crunch in parts of India?

April 17, 2018

There are reports coming from different corners about cash crunch and empty ATMs.

Madhya Pradesh chief minister Shivraj Singh Chouhan on Monday alleged a conspiracy aimed at creating cash crunch in the market by hoarding Rs 2000 currency notes and warned that the government will act sternly against the perpetrators.

“When demonitisation took place, markets were flooded with currency notes worth Rs 15 lakh crore. Today, Rs 16.5 lakh crore currency notes have been printed and circulated. But where are the Rs 2000 currency notes vanishing? Who is hoarding them? Who is creating currency crunch?” Chouhan asked a large gathering of farmers at Shajapur district headquarters. 

 

Cultural differences in monetary policy preferences

April 17, 2018

An interesting paper by Prof. Adriel Jost of Univ of St Gallen and Swiss National Bank.

The monetary policy preferences of a population are often explained by the country’s economic history. Based on Swiss data, this paper indicates that while different language groups may share the economic history, they demonstrate distinct monetary policy preferences. This suggests that distinct monetary policy preferences among the populations of different countries may be determined by not only their economic histories but also their distinct cultural background.

The author tries to figure the differences using several tests and datasets. For instance: (more…)

Chasing The Machine: India’s first computers and the Cold War

April 16, 2018

Fascinating account of  history of computers in India by Prof Nikhil Menon of Notre Dame University.

Prof Menon starts with this story of Morton Nadler who escaped from Prague to Calcutta for setting up a computer at Indian Statistical Institute at the behest of PC Mahalonobis. The entire tale is woven with ongoing Cold War and geo-political affairs. It was several events and conspiracies which led to computers coming to India.

What caught my eye was how computers were needed to “mine big data” to usher planning:

An encounter with Prasanta Chandra Mahalanobis—founder of the Indian Statistical Institute, and the driving force behind India’s Second Five Year Plan (1956-61)—presented Nadler with an escape route. Mahalanobis made Nadler an offer to work for the institute in Calcutta as a computer scientist. Czechoslovakia could not object to Nadler leaving for India (given India’s friendly relations with the Soviet Union), and in American eyes spending time in a democracy that was formally non-aligned in the Cold War helped rub off the stain of communism. Nadler signed a two-year contract to join the ISI “to work on electronic computers.” At the time, the institute was home to the only two electronic computers in India.

The first time he saw an electronic computer at Harvard in 1947, Mahalanobis was mesmerised. Stunned by its ability and convinced of its indispensability to economic planning, he believed that computers would solve one of centralised planning’s largest problems: big data. They could help with complex calculations and develop mathematical models of the economy. Mahalanobis believed that they could be vital for assessing trends for the extensive National Sample Survey that he was integral in launching. Unlike most countries that used computers in the mid twentieth century, in India their earliest use was for development—not in the military. The computer’s potential for planning was how Mahalanobis and the Indian government justified their pursuit and enormous expenses.

How this big data talk is seen differently today. But in reality the objectives are the same.

Highly recommended….

 

Women in Marathons: From being objected to becoming key for marketers..

April 16, 2018

Superb piece by Carly Drake PhD Candidate in Marketing, University of Calgary.

She tells the story of a Kathrine Switzer whose participation in the 1967 Boston Marathon was objected:

On an April morning in 1967, Kathrine Switzer ate a late breakfast of bacon, eggs, pancakes and toast. The Boston Marathon wasn’t due to begin until noon, so she had plenty of time to get to the starting line.

When the time came, she pinned the number 261 to her chest and started running through the Boston streets with her boyfriend, coach and friend in tow. Then, in a surprising contrast to the crowd’s cheers, she was attacked by a race official who’d noticed her ponytail and lipstick.

At this time, the Boston Marathon was a men’s-only race, and Switzer wasn’t exactly welcome in the field. After Switzer’s boyfriend warded off the race official by tackling him, Kathrine (registered as K. V. Switzer) crossed the finish line. Her efforts helped make the sport of endurance running more welcoming to women in the decades that followed.

“I wasn’t running Boston to prove anything,” she later wrote. “I was just a kid who wanted to run her first marathon.”

This month — 51 years after Switzer’s run — more than 10,000 women from around the world will compete in the Boston Marathon. The 42.2 kilometre (26.2 mile) run requires competitors to meet strict entry requirements, which means these women are some of endurance running’s fastest professional and recreational athletes.

As a marketing scholar, I study how gender and the body are represented in contemporary advertising. So, while the athletic world shifts its attention to Boston’s runners, I’m thinking about what those runners see in their social media newsfeeds or in the pages of the running magazines piled upon their nightstands.

She pores through advertising campaigns to encourage women to run:

In my research, I’m examining a sample of nearly 60 advertisements taken from the January/February 2017 issues of Runner’s World, Women’s Running and Canadian Running. So far, I’ve learned that Switzer’s run has left a complicated legacy in advertisements targeting female endurance runners.

Specifically, the advertisements celebrate women’s physical and mental strength and, in so doing, support women’s participation in the endurance running subculture. Yet these advertisements can also share a negative sentiment when they tell women exactly how they should look and behave.

Many of the advertisements glorify chasing the “ideal” running body — tall, lean and muscular — through unhealthy diet and exercise habits.

In the end, despite 50 years of Switzer, nothing much has changed:

Interpreted alongside the story of Switzer’s run, these advertisements are reminders that bodies are a part of history. Situated within an endurance running subculture that initially wasn’t quite sure how it would deal with the “woman problem,” these advertisements are evidence that female endurance runners are still bound by regulations.

While they are free to enter competitive races, the advertisements communicate that women’s success and value are tied to a certain training regime, body type and style of gender expression.

This focus on the body is a hallmark of the neoliberal ideology that colours Western public life more broadly. In neoliberal thinking, a “good” consumer makes the autonomous, rational choices that lead to physical fitness. Not only is fitness assumed to be more attractive, it benefits the state by saving on the economic costs of obesity.

Studying these advertisements, then, is an important task because advertisements tend to shape — and are shaped by — social norms, giving them a place of power in consumers’ lives.

What runners are seeing in the media can tell us a lot about what it means to be a runner today. If we know nothing else about these runners, we know that there are a lot of them. A year ago, Switzer ran the Boston Marathon on the 50th anniversary of her debut run. At 70 years old, she was the 9,856th woman to cross the finish line.

Because advertisers have no shortage of female endurance runners with which to communicate, it behooves them not to take another 50 years to change the conversation.

Hmm…

It is really nice to learn about different types of research people are doing…

For home price trends in London, check the Tokyo listings…

April 16, 2018

The key reason behind sub-prime crisis spreading across US was how home price trends became similar across the country.

In its new research, IMF points how the home price trends are becoming similar across the world:

If house prices are rising in Tokyo, are they also going up in London? Increasingly, the answer is yes.

In recent decades, house prices around the world have shown a growing tendency to move in the same direction at the same time. What accounts for this phenomenon, and what are the implications for the world economy? These are questions that IMF economists explore in Chapter 3 of the latest Global Financial Stability Report.

Our study of 44 cities and 40 advanced and emerging-market economies shows that the growing integration of financial markets plays an important role. As a result, housing markets in one country are more sensitive to swings in another. Policy makers should pay attention, because the heightened tendency for house prices to move in tandem may signal greater odds of an economic slowdown.  An economic shock in one part of the world is more likely to affect housing markets elsewhere.

Why is this happening?

  • Interest rates: The world’s major central banks have kept interest rates unusually low for a long time in a bid to stimulate growth. That has produced a ripple effect of low borrowing costs, including cheap mortgages, across the globe, which has helped push up prices.
  • Institutional investors, private equity firms, and Real Estate Investment Trusts have been increasingly active in major cities such as Amsterdam, Sydney, and Vancouver as they seek out higher returns.
  • Wealthy individuals have also snapped up properties in major financial centers in search of safe places to invest their money (and perhaps to live). One result: because the wealthy prefer high-end properties, their investments push up prices in expensive neighborhoods in places like New York and London at the same time.
  • Economic growth: In addition to financial factors, coordinated movements in the real economy contribute to the phenomenon. In 2017, growth picked up in 120 economies, accounting for three-quarters of world GDP. It was the broadest synchronized growth surge since 2010. Economic growth is a major driver of demand for homes, and hence prices.

All of this suggests that house prices are starting to behave more like the prices of financial assets, such as stocks and bonds, which are influenced by investors elsewhere in the world. In countries that are more open to global capital flows, prices of both homes and equities tend to be more synchronized with global markets.

 

Pakistan’s three major banks are up for sale: Why and who are the probable bidders?

April 16, 2018

The talks to buy large private banks are not just exclusive to India (whether Kotak Bank will buy Axis Bank?) but reach across to Pakistan as well.

There is this interesting piece by Farooq Tirmizi on Pakistan’s major banks up for sale. Interestingly, the bidders are those who have  never ran banks:

For the first time in Pakistani history, three perfectly healthy and viable banks are simultaneously up for sale. None of them is a distressed asset being sold by sponsors who had hastily gotten into the banking business and made too many bad loans that they did not have the capital nor the stomach to be able to cover. And none of them is a bloated, nationalized bank filled with a balance sheet of politically motivated bad loans and an employee roster of people who want a paycheck for doing very little. No, these are all banks in rude health, and worthy targets of any financial institution that wants a strong beachhead on their way to conquering the Pakistani financial market.

The problem? Nobody who knows banking wants to buy them, and (most of) the people who want to buy them have little to no experience in banking.

The three banks up for sale are Bank Alfalah (BAFL), Meezan Bank (MEBL), and Faysal Bank (FABL), which are the sixth, eighth and thirteenth largest banks in the country respectively, as measured by total assets. All three are up for sale for more or less the same reasons: the Gulf Arab investors who initially put up the capital to create these banks have held their positions profitably for decades and are now looking for a suitable exit opportunity.

So far Pakistan’s banks were up for sale for three reasons: Badly managed Nationalised bank, small private bank running losses or a foreign bank with lack of growth strategy. But none of these three apply to the three banks:

None of these three situations apply to any of these banks. Meezan Bank is the fastest growing bank in Pakistan and has never had a single year of losses in its entire history. Bank Alfalah grew from almost nothing to become the sixth largest bank in the country and remains an exceptional bank when it comes to its focus on consumer lending. And Faysal Bank has relationships with most major corporations in Pakistan and has been a solid middle-market player.

So why are these institutions up for sale? Each has its own story, though those stories have a few elements in common. How closely those past trajectories will be a consideration for their prospective buyers is not yet known, though if they are prudent, the potential investors would do well to understand just how these banks got to be where they are today.

Read the long story for more details.

Nice to know all this.

Is India a currency manipulator?

April 16, 2018

The US Treasury in its semi-annual currency report to the Congress has added India on the watchlist of currency manipulators:

Treasury has established a Monitoring List of major trading partners that merit close attention to their currency practices and macroeconomic policies. An economy meeting two of the three criteria in the 2015 Act is placed on the Monitoring List. Once on the Monitoring List, an economy will remain there for at least two consecutive Reports to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors. As a further measure, this Administration will add and retain on the Monitoring List any major trading partner that accounts for a large and disproportionate share of the overall U.S. trade deficit even if that economy has not met two of the three criteria from the 2015 Act. In this Report, the Monitoring List comprises China, Japan, Korea, Germany, Switzerland, and India, the latter being added to the Monitoring List in this Report.

Why India has been added?

India increased its purchases of foreign exchange over the first three quarters of 2017. Despite a sharp drop-off in purchases in the fourth quarter, net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 percent of GDP. The pick-up in purchases came amidst relatively strong foreign inflows, both of foreign direct investment and portfolio investment. Notwithstanding the increase in intervention, the rupee appreciated by more than 6 percent against the dollar and by more than 3 percent on a real effective basis in 2017. India has a significant bilateral goods trade surplus with the United States, totaling $23 billion in 2017, but India’s current account is in deficit at 1.5 percent of GDP and the exchange rate is not deemed to be undervalued by the IMF. Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary.

Hmm.

In the earlier report, Treasury had said it is watching India:

Over the first half of 2017, there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases, which have risen to around $42 billion (1.8 percent of GDP) over the four quarters through June 2017. India has a significant bilateral goods trade surplus with the United States, totaling $23 billion over the four quarters through June 2017. Treasury will be closely monitoring India’s foreign exchange and macroeconomic policies.

Mint edit says India is not a currency manipulator:

How are countries accused of currency manipulation by the US Treasury actually identified? There are three parameters that are used, sometimes unthinkingly. First, a country has to run a significant trade surplus of over $20 billion with the US. Second, it is judged not by the amount of currency intervention but whether such an operation is a one-sided attempt to keep the exchange rate down, measured in terms of additional foreign exchange reserves as a percentage of gross domestic product (GDP). Third, a country should have a large current account surplus with the rest of the world. How does India fare on these three fronts?

India does have a $23 billion trade surplus with the US, though that is dwarfed by the $375 billion trade surplus that China runs with the US. Mexico, Japan and Germany have far bigger bilateral trade surpluses. The net foreign exchange purchases by the RBI in 2017 amounted to 2.2% of GDP, which is close to what Thailand, Taiwan and Switzerland have done. And India is the only one of the countries on the US Treasury list that has a current account deficit with the rest of the world. Countries such as Thailand or Mexico were considered far more likely than India to be identified as potential currency manipulators.

Do Indian policymakers have to worry? They should not in normal times. The mechanical way in which the US Treasury interprets its three main parameters for identifying currency manipulation is almost scandalous. Also remember that the US has not yet formally accused China — with its notorious mercantilism — as a currency manipulator. US President Donald Trump had promised during his election campaign to treat China like a currency manipulator. If a country such as China with a massive bilateral trade surplus with the US, a large current account surplus with the rest of the world, and historically unprecedented management of its exchange rate is still only on the watch list, then the chances of India being actually termed a currency manipulator are slim.

The problem is that these are not normal times. Trump is merrily charging into a trade war that has much of the world on tenterhooks. He believes American workers are getting pushed into a corner because of trade partners who get preferential treatment in free trade agreements, or who strategically use trade barriers, or who keep their exchange rates artificially low to promote exports to the US. The new list released by the US Treasury needs to be seen against this background.

Indian policymakers have to be sensitive, without actually overreacting, to the risk that Trump may move from rattling the sabres to actually using them. India has traditionally tried to balance between preventing excess currency appreciation on the one hand and protecting domestic financial stability on the other. Much now depends on how the Indian government and the Indian central bank respond to the implicit US threat — but the two most obvious consequences could be an appreciating rupee as well as excess liquidity that messes with the interest rate policy of the RBI.

Ira Dugal discusses on BQ:

While there is no doubt, that India is now comfortable on forex reserves, the Treasury Department’s own data shows that its reserve accretion in 2017 and level of reserves is comparable to the other trading partners of the U.S.

The report also looks at adequacy of reserves slightly differently from the RBI by measuring it mostly against short-term debt. However, in a 2015 paper, RBI staffers had pointed out that India may need to consider factors other than the traditional metrics of forex reserve adequacy. One such factor is potential volatility of foreign portfolio inflows, since such flows are a significant source of financing India’s current account deficit.

Finally, while supporting the employment generating export sector is not the RBI’s mandate, it would be justified in keeping an eye out on that aspect too. As a flexible inflation targeting central bank, growth is still broadly part of the RBI’s mandate. To the extent that the currency impacts exports, which in turn impacts growth and employment, the Indian central bank would be justified in ensuring that the value of the currency is not wildly out of line with fundamentals just because of a surge in capital flows.

The geo-politics of currency markets…

Evolution and experiences with inflation targeting in different countries..

April 16, 2018

Interesting conference and set of papers at recently concluded conference by Reserve Bank of Australia .

Reading keeps piling up.

The paper on New Zealand Inflation Targeting is important given NZ has added employment to its price stability mandate.

High-denomination Banknotes in Circulation: A Cross-country Analysis

April 13, 2018

Interesting research by Gordon Flannigan and Stephanie Parsons of Reserve Bank of Australia in the central bank’s revamped Bulletin.

They try to see the reasons behind demand for High Denomination notes in Aus, Canada and UK:

In Australia, Canada and the United Kingdom, the number of high-denomination banknotes in circulation has increased at an above-trend rate in recent years. Evidence suggests that overseas demand might be a common driver of this elevated growth. Increased domestic demand for both transaction and store-of-value purposes may also have contributed, as well as responses to changes in government and central bank policies. This research was undertaken with assistance from members of the Four Nations Distribution Working Group, in line with the group’s objective to explore banknote-related topics that are directly relevant to the member central banks.

The overseas demand is mainly from Asian countries:

A key source of overseas demand for AUD 100 and CAD 100 banknotes appears to be Asia. Liaison with the cash industries in Australia and Canada suggests that there has been an increase in the proportion of AUD 100 and CAD 100 banknotes shipped to Hong Kong and Singapore. For example, in the five years to 2016 it is estimated that 80 per cent of foreign shipments of CAD 100 banknotes were destined for Hong Kong, compared with 60 per cent in the previous five years. Further, it is estimated that shipments of CAD 100 banknotes to Hong Kong accounted for about 5 per cent of all CAD 100 banknotes on issue in 2016, significantly increasing growth in banknotes in circulation in that year. Similarly, partial data from the Australian cash industry suggest that shipments to Hong Kong and Singapore in 2016 were equivalent to about 6 per cent of all AUD 100 banknotes in circulation. The link between Asian demand and GBP 50 banknotes in circulation is less clear. GBP 50 banknotes are primarily demanded by foreign exchange wholesalers abroad, consistent with an overseas store-of-value motive (Fish and Whymark 2015). However, because the British pound is a more prominent reserve currency, offshore demand is likely to be more widespread across countries.

Hmm..

Lots of other ideas and regressions in the study.

It was also interesting to note how government policies in Australia are creating speculation around High denomination notes:

Since peaking in late 2016, growth in demand for AUD 100 banknotes has declined considerably (Graph 4). This may partly reflect heightened uncertainty among consumers and businesses about the future status of AUD 100 banknotes following the Australian Government’s announcement in December 2016 of the formation of the Black Economy Taskforce (BETF). This taskforce aims to investigate and identify where regulations and policies could be introduced to reduce activity occurring outside the tax and regulatory system (excluding illegal or criminal activities). The BETF convening announcement included, among many other options, a discussion around strong demand for AUD 100 banknotes and identified the use of cash as an area to be investigated, generating intense media interest. This announcement coincided with heightened public interest in the future of high-denomination banknotes following decisions in some jurisdictions to withdraw the legal tender status of some high-denomination banknotes (India and Venezuela) or to discontinue production and issuance (euro area).

Daily lodgements of AUD 100 banknotes into cash depots increased sharply after the BETF announcement (Graph 7). It may have been that the BETF announcement, and associated media speculation about the future of AUD 100 banknotes, contributed to uncertainty among the general public and prompted some to spend AUD 100 banknotes that were previously held as a store of value. Liaison with the cash industry has indicated that the increase in lodgements has been evident across a broad range of retail customers, has occurred in most states and has been concentrated in capital cities.

 


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