Archive for October 19th, 2018

Featuring lifeboat and lighthouse in banknotes: Case of Norway…

October 19, 2018

Norway and Sea are connected deeply. They had earlier included cods in their 200 kroner note.

Now the new 50 kroner has lighthouse and 500 kroner has lifeboat as key themes.

Governor Øystein Olsen in this speech explains:


Promoting financial education using cinema…

October 19, 2018

Banca D’Italia oe Central Bank of Italy is promoting financial education using cinema:

As part of Financial Education Month, on 19 October at 9.30, Marco Onado, Senior Professor at Milan’s Bocconi University and expert in the law and economics of financial intermediaries, will give a talk to the students present at the screening of Adam McKay’s film ‘The Big Short’ at the Bank of Italy’s convention centre in Via Nazionale 190, Rome. The aim is to encourage high school students to reflect on themes relating to the economy and finance.

They even have a poster. Nice bit.

The Indian government/regulators could not just screen movies but even teach economics/finance lessons from them via Housefull Economics columns run by Think Pragati

The peso and Philippine economic history

October 19, 2018

The recent Agustín Carstens, (General Manager of the BIS) speech discusses the discovery of trade route between Philippines and Mexico:

In 1565, an Augustinian friar, Andrés de Urdaneta, discovered the return route from the Philippines to Mexico – then New Spain. This discovery meant that galleons could do round trips between America and Asia in an efficient way. Chinese silk, porcelain, spices and other goods travelled from Manila to Acapulco. The merchandise was then transported to Veracruz on Mexico’s east coast, from where it was on-shipped to Europe. From Mexico to the Philippines, the galleons would carry mostly Mexican silver, a widely accepted means of payment at the time. This trade route lasted for approximately 250 years, up to 1810-15 when Mexico fought for its independence from Spain. I bring this up because that trade route could be considered an early manifestation of globalisation.

The speech was given at the 20th anniversary of BIS’s Asia office in Hong Kong.

Notice that he mentions how the trade led to Solver coming to Philippines which becomes its main form payment.

Gerardo Secat in a series of posts (one, two)is looking at history of Philippine Peso and Philippines economic history. In these he points how the Peso got its value from this Spanish silver. He also discusses the later linkages between US dollar and the Philippine Peso:

The story of the peso is inextricably linked with our economic history as a nation. It is also part of Philippine political history. A monetary currency is adopted by the government to set up a means (and guarantee) of payment to enable normal commerce to proceed.

Spanish colonial times. During the 16th century (the age of explorations and European colonization of the world), the peso was a royal silver coin minted by the Spanish royal crown, much like the thaler (or “dollar”) within Europe.

Also known as real de a ocho (or “piece of eight”), the peso was also minted in larger quantities in colonial mints of the crown in Mexico and Peru, where bountiful mines were located that produced great wealth and power for the Spanish empire.

The peso would find great currency in the Spanish colonies (including the Philippines). Spanish colonial administration would adopt the peso as the means of payments in trade and financing of the government.

Throughout Spanish colonial period, the peso would delineate the story of Philippine trade and domestic prices. It was the currency that financed the Galleon Trade with Mexico and life within the colony up until the contemporaneous life of Jose Rizal  who was executed by the Spanish authorities shortly before the Spanish-US War of 1898.

The peso in American colonial times. One of the first decisions of the American military government when it took control of Las Islas Filipinas (the Philippine Islands) from Spain was to continue to use the peso as the local currency for transactions in the new colony unit.

The islands were a booty won from war in 1898. The US destroyed Spanish colonial rule over the islands, overcame also militarily the local struggle for independence, and took political possession. The transfer of political control through a treaty of peace and the payment of $20 million equivalent for “improvements” that Spain made as the former colonial master saved face as the loser.

In adopting the peso as the unit of currency, the US colonial government fixed its value at one-half the US dollar. Thus, one US dollar became equivalent to two Philippine pesos.

That made the Philippine peso become a currency based on fixed exchange rate with the US dollar. Hence, it was a currency operating under a “dollar exchange” standard. It was common practice among colonial powers to base local currencies after a fixed exchange with their own stronger currency.

Throughout the almost five-decades of strictly being under American colonial administration, the Philippine peso had a fixed value of two pesos per US dollar.

Superb bit of history and know how….

Inviting Government to “observe” monetary policy meetings: How RBNZ is revisiting many older ideas which were questioned…

October 19, 2018

It was interesting to read the letter exchange between Reserve Bank of New Zealand  and NZ Government.

RBNZ press release explains:

The Secretary to the Treasury, Gabriel Makhlouf, has accepted Reserve Bank Governor Adrian Orr’s invitation to attend monetary policy deliberation and decision meetings as an observer from the end of this month.

Mr Orr extended the invitation to deepen Mr Makhlouf’s understanding of the process leading into a monetary policy decision, with the aim of ensuring a smooth transition to a new monetary policy framework.

This invitation comes ahead of the proposed creation of a formal Treasury observer position in the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill. This Bill is currently being considered by the Finance and Expenditure Committee.

As outlined in his letter to the Governor, Mr Makhlouf recognises and respects the highly confidential nature of these meetings. Mr Makhlouf’s letter outlines how he intends to manage issues related to confidentiality, and any actual or perceived conflicts of interest. The letter also details how Mr Makhlouf will avoid any perception of conflict in relation to his statutory responsibility for the Treasury’s debt management function. 

This is interesting. Worldwide, the whole thinking is to minimise government’s role in central banks. The Government representative is there on central bank boards which is also seen as too much interference at times.

But in case of NZ, they are inviting a Government official to “observe” monetary policy meetings of all things. The government person has no voting power but will be preview to discussions and even share his/her views.

In many ways we came to the two ideas of “central banks for price stability only” and “keep governments away from central banks” from Reserve Bank of NZ’s adoption of inflation targeting mandate in 1989. Since the new NZ government in 2017, both these ideas have been redone quite a bit. First, The central bank has recently added employment to its price stability mandate. Second, asking government to be an observant to monetary policy decisions.

I am not saying all this is bad stuff. It is just that times are changing and we are coming back full circle.


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