Archive for November, 2018

Black Market Prices in Japan during World War II.

November 30, 2018

Interesting paper by Masato Shizume of Bank of Japan:

This paper constructs a time series of data related to black-market prices of five goods (rice, sweet potatoes, potatoes, chicken eggs and sugar) during World War II (WWII) in Japan. It is the first attempt to capture the actual price fluctuation trends for individual products throughout the period during and after WWII. To this end, I have employed the hedonic approach, which is a methodology used to adjust for the quality of goods including the characteristics of counterparties and places of transaction in constructing the price data, to obtain estimates that are as unbiased as possible.

The data reveals that 1) black-market prices of these goods soared during WWII to post 40-80 percent inflation on a quarterly basis toward the end of the war, 2) by the end of the war, black-market prices had already increased by over 50 times (in the case of sweet potatoes) or 700 times (in the case of sugar) compared with 1934 levels, prior to wartime inflation, indicating more severe inflation during the war than after the war, 3) the most severe period of inflation varied by product, peaking during the war for rice and sugar and after the war for sweet potatoes, potatoes and chicken eggs, and 4) black-market prices were generally higher in urban areas than in rural areas.



Why historians worry more about Trump than economists…

November 30, 2018

Whether it is interviews done by Tyler Cowen or his articles, they are usually worth reading.

His recent piece doing rounds on social media:

The dangers of the current political moment in the West — with its polarization, harsh rhetoric and growing hostility toward cosmopolitanism — are evident to historians and economists alike. But which group sees the situation as more grave? I suspect it is historians, and it is worth considering why.

To be sure, some of the disgruntlement of historians stems from their political orientation. Historians are relatively left-wing, so it is no surprise that they are hostile to an “alt-right” shift in the political discourse. During the 2016 campaign, the group Historians Against Trump received widespread publicity.

More fundamentally, however, historians stress the importance of contingency, that things really could have gone another way. The decisions of a solitary assassin or the outcome of a single battle can shift the course of history. Particular leadership decisions might have avoided or limited World War I. Or what if the Germans had not, in 1917, put Lenin on a train back into Russia? The Bolshevik Revolution might have been avoided and probably the entire course of history would have been different. A shrewder President Paul von Hindenburg might have prevented the rise of Adolf Hitler.

If you think about these questions enough, you can end up very nervous indeed. Historians have seen too many modest mistakes spiral out of control and turn into disasters.

Economists, in contrast, work more with general models than with concrete historical situations, and those models emphasize underlying structural forces. Economies have fairly set populations, birth rates, natural resources, capital stocks, savings rates, trading partners, and so on. So to an economist, the final outcomes are closer to necessary than contingent.

Economists also study “catch-up growth,” which holds that systems tend to be self-repairing. So if some resources are destroyed, GDP will fall but the system will produce new replacement resources more rapidly, just as a lobster might regrow a lopped-off arm. Catch-up growth tends to make economists less nervous about natural disasters or wartime losses, although of course we think it is better to avoid the resource destruction in the first place. Many of Japan’s major cities were bombed to oblivion in World War II, but in time they regained their former prominence.

Some economic models do emphasize contingency — for instance, how a small force could induce an economy to make a major shift from one equilibrium to another. To give an example, some amount of defense contracting in Silicon Valley later caused the area to blossom into a major technology center. But perhaps the same could have happened in some other regions of the U.S. And these economic models remain the exception rather than the rule, often criticized for the fact that, under some circumstances, they can predict almost anything.



Central Bank accountability and the importance of explaining its actions: Case of Mauritius

November 30, 2018

Central bankers are often cribbing about lack of independence but seldom mention whether they are accountable enough.

Yandraduth Googoolye, Governor of the Bank of Mauritius in this speech talks about accountability. More importantly, says criticism from media is welcome:


New commemorative coin launched to mark 100 years since Irish women won the right to vote

November 29, 2018

I just blogged about how German women won right to vote 100 years ago.

Irish women won the right too same time. The central bank has launched a new EURO 15 coin to mark the event.


How the Ancient Egyptian economy laid the groundwork for building the pyramids

November 29, 2018

Andreas Winkler, Departmental Lecturer in Egyptology and Coptic, University of Oxford writes this really cool piece.

The way these huge pyramids were funded seems to be quite similar to the way British used zamindari system of land settlements to collect taxes in India:


The Development Economist as Historian of Economics: The Case of William J. Barber

November 29, 2018

Interesting paper by Mauro Boianovsky of Universidade de Brasilia.

The paper shows how William Barber’s background as a development economist influenced his research agenda in the history of economic thought, in terms of the questions he asked and the way he approached them. The links between the history of economic theory and of policy-making are highlighted, as well as Barber’s investigation of the engagement of British economists with India’s economic matters throughout the time span of the English East India Company.

The last bit on British economists on Indian economic matters:

Barber’s engagement with Myrdal’s project on India made him mindful of the role played by British economists – from Thomas Mun to James Steuart, Adam
Smith, Lord Lauderdale, Thomas R. Malthus, James Mill, J.R. McCulloch, Richard Jones and J.S. Mill – in maters related to the government of the sub-continent by the British East India Company between 1660 and 1858, as well as the influence of those issues on their respective theoretical frameworks. That is already noticeable in Barber’s (1967, p. 96) remark about James Mill’s “zeal for translating Ricardian and utilitarian doctrine into a massive program of reform in India” and its influence on the development of Mill’s thought (unlike his son John Stuart Mill), fully developed in his 1969 HOPE article and in the 1975 book.

Barber’s main contribution, qua development economist, to the history of economics was his 1975 investigation of the interplay between British economic analysis and colonial policy in India. Whereas Lewis did not address the classical views about the economic development of “backward” areas (such as India or Ireland), that captured Barber’s attention. With its focus on the interaction of economic theory and policymaking, the book on India set the tone for Barber’s trajectory as a historian of economics for the next decades, when the history of American economic thought came to the fore in his agenda (Barber 1985, 1996). Barber (2008, chapters 8-10) would come back to the history of development economics as Myrdal’s biographer, his last major work in history of thought.

It is amazing how little western world economists have paid any attention to colonial era while discussing world economy and development. This is not something new but has been going on for a long time as likes of Barber discovered….

Flight-to-safety and the Credit Crunch: A new history of the banking crisis in France during the Great Depression

November 28, 2018

Nice research by Patrice Baubeau , Eric Monnet, Angelo Riva  and Stefano  Ungaro.

They look at archival records of banks in France during Great Depression. They find that the impact was much severe than imagined:

Previous research has downplayed the role of banking panics and financial factors in the French Great Depression of the 1930s. Although scholars acknowledged that some banking failures occurred in France during the period 1930-1932, the common view of the absence of significant economic consequences has persisted. It results from the lack of statistics able to provide a comprehensive picture of the magnitude of banking panics, in the absence of banking regulation in France prior to 1941. The usual method to compute series of bank credit and deposits relied on the balance sheet of the four largest commercial banks – whose data were easily available – and to assume that those banks represented half of the banking sector. These large banks did not experience difficulties and their deposits did not decrease in 1930 and 1931.

Based on extensive archival research we have found the balance sheets of more than 400 hundred banks in interwar France. This finding gives a completely different view of the 1930-1931 banking crises. Whereas the four large commercial banks escaped the crisis, the remainder of the banking system experienced two dramatic waves of panic (end of 1930 and end of 1931), such that its deposits decreased by 40% between 1929 and 1931. The decrease in credit was even stronger (-44%). Banking panics were concentrated in 1930-1931. The decrease of banking activity that followed starting 1932 is fully explained by deflation.

Banking theory explains the mechanisms of bank runs, but it is silent on where deposits go when they are withdrawn from the banking system. Traditional monetary interpretations point to a drop in the money multiplier and in the money base, either because cash is hoarded or because deposits remain frozen in bankrupt banks. Our estimation of hoarded cash and frozen deposits show that they cannot account for the bulk of deposits that fled the banking system in 1930 and 1931.

Instead, most of these deposits went to savings institutions (Caisses d’Epargne) which collected deposits at a regulated interest rate and invested their assets in Treasury bonds. We characterize this phenomenon as a flight-to-safety. Because of capital inflows and the flight-to-safety from banks to non-banks, the total amount of deposits slightly increased in France from 1930 to 1932.

How can a country experience deflation and a decline of about 1/3 in real activity, whereas at the same time the money supply increases? The answer to this question lies in the dramatic decrease of credit. A credit crunch occurred because the institutions that received deposits during the banking panic – namely the saving institutions and the central bank – did not lend to the economy. New cash deposited with the savings institutions (Caisses d’épargne) was used directly to repay marketable public debt, which decreased between 1928 and 1933. 

The large banks which were not affected by the crisis deposited 25% of their assets with the central bank. The central bank increased very modestly its lending to the economy (both banks and non-banks) but it was dwarfed by the dramatic increase in gold reserves, the ultimate safe asset. Gold reserves doubled between 1929 and 1932. No financial institution replaced the banking system as a lender to the economy.

The highlighted bit suggests deposits lead to loans. But this has been disputed off late by several experts. Instead we now say loans lead to deposits.

Given this, a better way to say is there were limited business opportunities to lend to. So whether it is commercial banks or savings institutions, they either did not find lending opportunities or loan-seekers were not coming to these financial institutions….

Thinking about regulating shadow banks and renaming shadow banks as non-banks…

November 28, 2018

Luigi Federico Signorini in this speech talks about the need for regulation of non-banks.

He also points how Financial Stability Board has changed the nomenclature of shadow banks:

With the completion of Basel 3, the post-crisis overhaul of banking regulation is essentially over; with a limited number of exceptions, the only issues remaining for the next few years will be the implementation of reforms and the evaluation of their effects, intended or otherwise, over time. Banks, however, do not comprise the entire financial sector.

Arguably, non-bank financial intermediation has taken on an increasing role in the global financial system and poses new challenges to regulators. The attention of international co-ordinating bodies such as the FSB is therefore now mainly, and rightly, directed towards what used to be known by the vaguely derogatory name of ‘shadow banking’ but is now more neutrally termed ‘non-bank financial intermediation’. The aim of this speech will be to explore the emerging risks from non-banks, to describe the (not insignificant, but still inchoate) regulatory response so far, and to speculate about a possible agenda for
the medium-term future.

Global non-bank finance concerns everybody, even countries where banks continue to play a dominant role in the internal financial system, like Tunisia – or Italy, for that  matter. In a globally interconnected financial system, no country stands alone; none can remain isolated from market shocks and turbulence whose ultimate source may be in faraway parts of the globe. This is a key point for emerging market and developing economies.

Witness the recent experience of the ‘taper tantrum’, when a number of emerging economies faced external financial conditions that had tightened abruptly and higher generalised risk premia in reaction to a policy decision taken by the US authorities. On that occasion the countries affected found that the negative repercussions on their economy stemming from the generalised repricing of assets could not be mitigated through policy actions (either by relying on floating exchange rates or through capital  flow management measures). It has also become apparent that a low degree of financial deepening may actually increase the sensitivity of emerging asset markets to external shocks.

The issue with non-bank finance, it will be argued, is not the stability of individual intermediaries—micro-prudential risk. As the risk connected to managed assets is borne almost entirely by the ultimate investor, rather than by the manager itself, it is not, or not mainly, the possible default of the manager that should concern regulators.

On the other hand, the actions of asset managers may affect the financial system and the  general economy through their systemic consequences on market developments. The key questions are then whether, to what extent and under what conditions non-bank intermediation can amplify market movements and determine instability. It is, therefore, essentially a macro-prudential question. Understanding and measuring such risks will require data, research and careful reflection; tackling them is likely to require new or reinforced supervisory tools and, quite possibly, a broader mandate for supervisory authorities.


We are again seeing some concerns from non-banking financial sector. Here is another recent speech from Luis de Guindos, Vice-President of the ECB.

Jammu and Kashmir Bank becomes a public sector unit…(A turn in fascinating history of the bank)

November 28, 2018

Lots of things going on in Jammu and Kashmir.

One news which caught my attention was the Governor Satya Pal Malik deciding to convert J&K Bank into a State Public Sector Undertaking (read this as well):

A day after Governor Satya Pal Malik dissolved the Jammu and Kashmir assembly, the State Administrative Council chaired by him decided to turn the J&K Bank Ltd into a public-sector bank, taking its autonomy away and making it accountable to the state legislature. Further, it will also be brought under the ambit of the J&K RTI Act and the Central Vigilance Commission.

Until now, J&K Bank was classified as an ‘old private sector bank’ and supervised by the Reserve Bank of India. Besides, it is also subject to oversight by the Comptroller and Auditor General (CAG). Omar Abdullah of National Conference called it a “disturbing development” and said the Governor, who is a “caretaker administrator did not have the people’s mandate to take such major decisions with far-reaching implications”.

PDP’s Mehbooba Mufti described it as a “disturbing step to snatch every bit of autonomy that our institutions have”. Sajad Lone of People’s Conference said his party’s economic philosophy is decentralisation and total liberalisation. “We believe in smaller government, not more government control. The best thing the government of the day can do is to get out of the way. Any remedies (regarding J&K Bank) should have been institution-specific, rather than invading it with overarching government control. The track record of J&K government PSUs is extremely bad,” he said.

The J&K state holds a majority or 59.3 per cent stake in the bank. In a statement Thursday, J&K Director, Press and Information, said, “As the state is a major shareholder in J&K Bank Ltd, a need was felt that it should have a character of a PSU which is subject to general supervision and access for enhanced transparency in the transaction of its business to promote trust.” “The purpose is not to question the day-to-day activities of the bank management but a step towards strengthening better corporate governance,” the statement said.

Here is an interview of Haseeb Drabu, the former finance minister of the State and former chairperson of the bank:

Q: What do you make of the decision to declare J&K Bank as a PSU?

A: J&K Bank is a publicly listed bank where the government of J&K has a majority shareholding. It is a government company. It is a very unique institution as no other state government owns a bank. Banking is a central subject so all government-owned banks are owned by the Union government. J&K Bank is an exception. Technically, it is an old generation private sector bank. Now it has been downgraded and put at par with any other state public sector undertaking like the J&K SRTC or J&K SFC or J&K TDC.

 Q: What does it mean for the bank and the state?

A: It is a thoughtless decision which is very regressive. It will have a very negative impact on the bank and its functioning.  There is no way that the state will be benefit from it. The state government will increase its control and that may be a positive for the Governor or his team. But it will be an unqualified disaster. The institutional autonomy of decision making will be impaired and all commercial decisions can be questioned for one reason or the other. It will also open up the bank to too many masters. Already it is supervised by the RBI, annually inspected by them, then the CAG audits it, it has its own internal auditors. Now, it will have the legislature and all the bodies of government interfering in its decision making.

 Q The government today said that classifying the bank as PSU is “stating the obvious” as the state government is the owner?

A: This is not correct. It is not a PSU. It cannot be. The basic tenet of corporate governance is the separation of ownership and management. Owners are managers in PSUs. Their chairman and MDs are appointed by the government. The chairman and chief executive of J&K bank is appointed by the Reserve Bank of India, on recommendation of the board of directors.     

Q: But bringing it under the ambit of RTI is seen as a good move to increase transparency in its functioning. Will it not?

A: Bringing it under RTI is a separate matter. It can be done without putting the bank under the PSU framework. I am all for transparency but it should not jeopardise commercial functioning of the bank. Central Information Commission has ruled out disclosure of information relating to bank accounts under the RTI Act saying that the agreements entered into by banks with its customers are matters of commercial confidence. Please understand that the bank holds such information concerning private persons in a relationship of trust. On administrative matters of the bank, bringing it under the ambit of RTI is not an issue. A case in point is the recent controversy about appointments in the J&K Bank. The reason why RTI is an issue is that it makes J&K bank as State. It is a legal conundrum. This means by implication it is an intrinsic part of the state government. Once it becomes a part of Government, every decision can be questioned and it is open to political interference and misuse. It is easy to say that if I am against RTI, I am against transparency and that I am scared of skeletons tumbling out. I wish it was so simple. I have run the bank for six years. Every commercial decision, on say a loan being sanctioned and its pricing, the rate of interest, will be questioned. Competitors and even political adversaries will file RTI queries and that will be the end of business of the bank. It is the thin edge of the wedge. There will be no end to it.

 Q: What about other banks across India?

A: They are but in a limited sense. As I said, the commercial part is not. But they don’t have the complication of being State. J&K bank has. There have been many legal cases on this issue of J&K bank being State. What has made the decision adverse in the case of J&K Bank is that it has now been made accountable to the legislature. Not so long ago, when I was the finance minister, a veteran legislator was trying to raise the case of an NPA account settlement. The bank will have to submit its Annual Report to the legislature like all state PSUs. Commercial Banks, owned by the Government of India, don’t have to submit their Annual Reports to Parliament! Where is this coming from?  What makes it unacceptable is that it is done by an administration that is neither elected by the people nor accountable to them. If tomorrow, the state legislature discusses the matter and decides to bring it under its own control, there can be a debate there. At the end a view will be taken. Here, it is a set of administrators in the SAC who take a view that has serious implications. That is also an issue. Such an issue is best decided by an elected and accountable government.


Going back into history. The bank was established in 1938 by then Maharaja Hari Singh. So the bank is in its 80th year now.

Post Independence, RBI while looking at Princely State Banks , looked at J&K Bank: case closely. It said the following:

With the extension of the Reserve Bank of India Act to the whole of India, the question of the Bank undertaking banking business for the Jammu and
Kashmir state government came up for consideration. When the question of entering into an agreement with the state government under section 21A of
the Bank Act was considered in 1959, the Bank and the Government of India concluded that ‘it would be unwise’ to entrust currency chests to the state
government and place ‘banking arrangements with the state on par with those of other states’ until its administration ‘particularly the treasury and accounting
side … settled down’. Besides, in the Bank’s view, agreements with other states were not working ‘quite satisfactorily’, and state governments were using the Bank for ‘unregulated overdrafts’. Hence the Bank felt it was ‘not desirable to place this temptation in the way of the Jammu and Kashmir State’.

The Jammu and Kashmir Bank was the banker to the state government. A non-scheduled bank incorporated in 1938, nearly two-thirds of its paid-up capital was contributed by the Jammu and Kashmir government. The latter had three nominees on the bank’s Board, one of whom was its Chairman. A
government company under the Companies Act, 1956, the bank had entrusted to it the state government’s treasury work at Srinagar and eight other
places in the state. The government and institutions associated with or controlled by it also held substantial deposits with the bank and borrowed funds from it on a large scale. Successive inspections by the Bank’s officers revealed that the financial position of the Jammu and Kashmir Bank
was extremely unsatisfactory.

In 1959 the Bank found that the Jammu and Kashmir Bank’s paid-up capital and reserves (including undistributed profits) amounting to nearly Rs 15 lakhs had been wiped out, and that its deposits had been affected to the tune of Rs 6.72 lakhs. The inspection also revealed major defects in the bank’s investment and advances portfolio, earning capacity, and head office supervision and control over its branches. Apart from issuing directions, the Bank also deputed an officer to the Jammu and Kashmir Bank to study the latter’s working and recommend ways of placing the institution’s administration on a sounder footing. Little came of this, however, as the bank took ‘no concrete steps … to implement’ the officer’s recommendations. The Bank’s subsequent inspections revealed no improvement in the affairs of the Jammu and Kashmir Bank, and the latter was then judged ineligible for a licence under the Banking Companies Act.

The situation in Jammu and Kashmir was thus quite anomalous. However its affairs were conducted, the Jammu and Kashmir Bank was in almost every
sense of the term a ‘state-associated’ banking institution. But not only had this institution not benefited from the organizational and operational reforms
carried out of the other major state-associated banks, the State Bank of India which did conduct the central government’s treasury business to a limited
extent in Jammu and Kashmir, was a relatively negligible presence in the state.

Thus, the financial position has barely changed all these years. The RBI then debated on whether to make J&K Bank also a subsidiary of the State Bank of India like other Princely State Banks.

The possibility of the State Bank of India taking over the Jammu and Kashmir Bank was raised by the state government with the State Bank Chairman, P.C. Bhattacharyya, in October 1961.

In deliberating upon this suggestion, the Reserve Bank concluded that in principle two distinct questions had to be tackled: firstly, whether it should agree to become banker to the state government, and secondly whether it should appoint the Jammu and Kashmir Bank as its own agent in the State. 

The two issues were interconnected. If the RBI decided to become banker to State, then it would have to do away with how it allowed other Princely State banks to be bankers to State. But if it allowed J&K Bank to work like other Princely State banks and be made a subsidiary of SBI, then currency chests would remain with J&K Bank and  funds freely available to the States. By now, RBI was already dealing with problems of the States bleeding the currency chests held by the Princely State Banks. Hence, it was a dillemma of sorts for RBI.

Thus, it was decided to maintain status quo on J&K Bank.

This coincided with views of J&K Government as well. A Committee by the Government did not favor J&K Bank becoming a part of SBI (but obviously). They said a local bank should finance commerce and trade of the State. It also said the bank should continue to be banker to the State,

Thus, we had J&K Bank positioning itself as a very different bank. It was a Princely State Bank but was kept in the Old Private Sector Bank category. The history of Indian banking is quite fascinating with so many different types of banks.

Coming to present. the majority of the ownership – 59.23%- is still held by the J&K State with public owning 40%. Hence, it is a special case in every which way.  Now, it has become a Public Sector Undertaking of the State. In terms of ownership not much changes. But in case of governance, as Drabu argues it could mean a lot.  The Government on the other hand argues that this will lead to more accountability.

We have to wait for more news on this.

Given this case, one should also read this post about State Bank of Sikkim. It is a central cum commercial bank of the State which is not regulated by RBI..

How Israel lowered concentration in banks’ credit portfolio and cleaned up its banking system (lessons for India?)

November 27, 2018

Interesting remarks by Dr. Hedva Ber, Supervisor of Banks at Bank of Israel:

The supervisor points how from 1990-2010, Israel’s credit market was highly concentrated in hands of few companies. Since then, they have cleaned up the system taking stringent steps involving firing several key people:


Israeli settlers sue Airbnb for delisting West Bank homes

November 27, 2018

Interesting case of how technology companies which think “one globe one market” are getting involved into regional matters.


How the discovery of a Jewish banker’s looted estate reunited a scattered family

November 27, 2018

Fascinating piece:

The family of the banker Marcus Heinemann was scattered all over the world. Then a provenance researcher discovered a file from the Nazi era, allowing the family to reunite in Germany for the first time in 70 years.

Amazing application of historical records…

We need to go beyond self-interest or we’re doomed: Jean Drèze

November 27, 2018

Nice interview of Jean Dreze. Kudos to G-Sampath of Hindu for asking pertinent questions.

Here is a sampler:

In general, economists are a part of the problem and not the solution. Would you agree?

Well, economics can be a very useful discipline if studied critically. But if you are not critical, then it can become toxic. If you take economic models at face value, you could end up being in a world of your own.

But even as a discipline, economics seems biased against the poor.

It’s not just economics. In many disciplines, if you look at the history of ideas, it is essentially ideas that are convenient for the privileged and the powerful that tend to flourish; they are the ones that get sponsored, the ones around which conferences are organised, and so on. In contrast, ideas that are deemed threatening to the established order tend to be sidelined.

Can you give an example?

Take the idea that competition is good not only for economic efficiency but also for social welfare. This is questionable even in terms of mainstream economic analysis. But the way it is taught is that, except in cases of asymmetric information or other market failures, there is general compatibility between competition and social welfare. On the other hand, ideas about the value of cooperation, which are equally important, have not been developed much. Another example is the concept of exploitation. We do not learn anything about it, and it is not even a word we use in economics courses. How can you understand the labour market in India, or the Indian economy without thinking about exploitation? Economic ideas like asymmetric information could help, but somehow they tend to be used for other purposes.

Isn’t ‘exploitation’ a ‘Marxist concept? Maybe that’s why it’s not in mainstream economics?

It’s not a Marxist concept, it’s a common sense concept. But it is perhaps seen as something that doesn’t belong in the discipline. We do have a conceptual tool to think about exploitation — the whole literature on asymmetric information. But this is just a big term to describe something as simple as, “I know something that you don’t, and I wont tell you.” In effect, this is just lying, but we don’t call it lying.

So if economics does have a conceptual tool to study exploitation, where is the problem?

The problem is in how it is used. If you look at the literature on asymmetric information, it started focussing very quickly on the concerns of the privileged, primarily the employers, the lenders — what if the labourer does not do the work he is supposed to do, what if the borrower does not repay, and so on. The whole thing started being looked at not from the point of view of the exploited but from the point of view of the exploiter. So, by this process of selection of ideas, we end up losing sight of a lot of things that are extremely important, such as exploitation, cooperation, class, caste. That’s why economists can end up, despite all their skills and brilliance, as not very reliable advisers on matters of social policy.

Much more in the interview..

The first D-Mark notes were printed by US based Bureau of Engraving and Printing..

November 27, 2018

Interesting speech by Mr Burkhard Balz, Member of the Executive Board of the Deutsche Bundesbank. The speech is about US-Germany relations.

Your decision to invite me, a representative from the Bundesbank, to speak on this topic today is particularly fitting. That is because the Bundesbank has been nurturing major transatlantic relations from day one.

To be precise, the very creation of the Deutsche Bundesbank – or should I say, that of its predecessor, the Bank Deutscher Länder – is very much tied up with an American, and British, project: the currency reform in 1948.

The Allies deemed this reform necessary in order to combat the steady depreciation of the German currency. To put the project into practice, it was also necessary to create the right German institutions.

But the Americans’ support didn’t end there. Would you believe that the first Deutsche Mark banknotes were designed and printed in the United States?

Take a look at one of these original Deutsche Mark notes and you will quickly see the signature style of the responsible Bureau of Engraving and Printing and the similarity to US dollar notes. So the Bundesbank – and its predecessor, the Bank deutscher Länder – enjoy close and amicable relations with the Federal Reserve System that go back a long way.

For one thing, there is the quasi-institutionalised cooperation at the international level which came into being when the Deutsche Mark was pegged to the US dollar as part of the Bretton Woods monetary system.

Nowadays, the Federal Reserve and the Bundesbank meet at regular intervals to share their views, such as within the G 20 framework or at the Bank for International Settlements in Basel.

And for another thing, the Bundesbank has been a fixture at the New York financial centre since back in 1963, and it has had its own representative office there since 1986. You see, the United States and the New York financial centre were becoming increasingly important for the Bundesbank’s operations. We do, after all, hold a great deal of our reserve assets in US dollars.



Will B-school teachers rise to the challenge?

November 26, 2018

S. Raghuraman and V. Anantha Nageswaran in this piece argues for revisiting education at B-schools. They are Professor and Dean respectively at IFMR Graduate School of Business, Krea University.

Today, the world that management graduates step into is increasingly, to borrow the military expression, VUCA—volatile, uncertain, complex and ambiguous. The dots that need connecting have increased exponentially. Issues that were non-existent a few years back are heated topics of discussion in boardrooms today.

For instance, Google’s issues with data privacy are no longer just a ‘customer’ issue. The contours of this problem touch multiple uncharted areas: contested definitions of privacy, what constitutes ethical use of data, regulatory oversight of data usage and storage. A map to navigate terrains like these, which are what the future holds, does not exist. It has to be created.

Current business education provides useful tools to grapple with these issues, but most of the financial, organizational and strategic frameworks are, as an Aspen Institute report (Charting a new course for next-generation business leaders, 2018) pointed out, tied to the logic of the marketplace and typically short-term oriented.

A typical case study that is used in business schools would describe the organization, the problem situation, and financial and non-financial data relevant to the situation. It would expect the students to arrive at a decision that would help the shareholder maximize value.

No doubt, it helps to sharpen analytical skills. However, for the wicked problems we face today there is a need to go beyond. Maybe, question what shareholder value is and at whose expense is it maximized, how might this solution look for a different stakeholder, does the solution have within it seeds for future problems and how to connect or contextualize the current solution in the light of learning from other subjects.


The eternal perception war of the superiority of ‘hard’ courses (for example, quantitative or mathematical) versus the ‘soft’ ones will be an obstacle. Consilience is going to be hard but it is inevitable and, importantly, it is desirable. If students have to be taught how to think holistically and how to connect the dots, teachers need to be able to do both well and be comfortable doing so. Co-teaching—and that just does not mean dividing the course between two teachers—is the best way to set an example to students.

Changing our own belief structures is a critical prerequisite to changing the institution’s belief structure. All change must start from within to have a lasting impact.


Meet P.C. Musthafa of iD foods: The breakfast king

November 26, 2018

Nice piece profiling PC Musthafa of ID foods.

He wants to make idlis and dosas staple breakfasts for the whole country. They have even come up with a special way to make vadas.


Considerations for a cashless future in Sweden and Australia

November 26, 2018

Two speeches:

Riksbank is clearly headed the cashless way. Australia is also gradually moving towards less cash if not cashless.

China’s Monetary Policy Communication: Frameworks, Impact, and Recommendations

November 26, 2018

Nice paper by Michael McMahon, Alfred Schipke and Xiang Li. Apart from the communication channels used by PBOC, it gives one a sense of how PBOC conducts monetary policy:

Financial markets are eager for any signal of monetary policy from the People’s Bank of China (PBC). The importance of effective monetary policy communication will only increase as China continues to liberalize its financial system and open its economy. This paper discusses the country’s unique institutional setup and empirically analyzes the impact on financial markets of the PBC’s main communication channels, including a novel communication channel. The results suggest that there has been significant progress but that PBC communication is still evolving toward the level of other major economies. The paper recommends medium-term policy reforms and reforms that can be adopted quickly.

As a Mint piece argued, if central bank independence is so important for investors, how China continues to get funds…

History of Standard Chartered Bank in West Africa/Ghana

November 23, 2018

These speeches are really useful to understand how western banks started businesses in other countries as foreign banks. And overtime became an integral part of the local economy.

Ernest Addsion, Governor of Bank of Ghana recently inaugurated a new headquarter building of Standard Chartered Bank in Ghana. His speech gives us a brief about the bank’s origins in Ghana:

It gives me great pleasure to be here today for the official launching of this new ultra-modern head office for Standard Chartered Bank (Ghana) Limited, and for the opportunity to make a few remarks on this occasion.

2. Standard Chartered bank has been a very successful Bank with a great tradition as a financial institution. Established as the Bank for British
West Africa (BBWA) during the colonial era, it predates all existing banks including the Bank of Ghana itself. The Bank’s slogan “Here for Good” provides a deep historical perspective to banking in Ghana and indeed in the entire West African sub region. The Bank has also been managed  largely by a Ghanaian workforce and it is a Ghanaian Bank by every standard.

3, Mr. Chairman, the overall contribution of Standard chartered to the banking industry in Ghana is not in doubt. Its history is intertwined with the
socio-economic development of Ghana. It remains one of the top tier banks in terms of total assets and deposits of the industry. The Bank has also
contributed churning out of astute professional bankers who have moved on to serve other institutions in the industry. It has also supported lending
to various sectors of the economy such as mining, utilities, construction, agriculture, manufacturing, and services. More recently, the bank has gone
through some transformation based on its business model re-engineering to reposition itself as a major player in the industry.

Wiki link of BBWA gives some more history. Fair bit there as well. The journey started from 1891 and was eventually taken over by Standard Chartered in 1965.

Why did France lag England (and much much more)..

November 23, 2018

This is a fascinating interview of Prof John Nye. It is done by Tyler Cowen (who else).

Is John Nye the finest polymath in the George Mason economics department?

Raised in the Philippines and taught to be a well-rounded Catholic gentleman, John Nye learned the importance of a rigorous education from a young age. Indeed, according to Tyler he may very well be the best educated among his colleagues, having studied physics and literature as an undergraduate before earning a master’s and PhD in economics. And his education continues, as he’s now hard at work mastering his fourth language.

On this episode of Conversations with Tyler, Nye explains why it took longer for the French to urbanize than the British, the origins of the myth of free-trade Britain, why Vertigo is one of the greatest movies of all time, why John Stuart Mill is overrated, raising kids in a bilingual household, and much more.

He is quite a Polymath..

France vs England:


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