Archive for November 15th, 2018

Why we should be interested in the history of currencies

November 15, 2018

Swiss National Bank issued a press release about Ernst Baltensperger’s history of the Swiss franc to appear in Italian. The book was written in 2012 and is available in German and French editions. Sigh! Will have to wait for English edition.

Anyways, further research took me to this wonderful speech by Ernst titled: Why we should be interested in the history of currencies.



History trivia: Why 19 November is a curious date for much awaited RBI Board meeting…

November 15, 2018

The much awaited RBI Board meeting is slated on 19 November. But if news are to be believed, lot of patchwork is already done. Trust the folks to meet as if nothing has happened.

What is interesting is 19 November also happens to be birthday of former Prime Minister Indira Gandhi. Reading RBI’s history volumes, one clearly sees how the central bank just becomes a handmaiden of government during her PMship years.  This was largely due to the nationalisation of banks in 1969 which gave government/finance ministry enormous powers over economic and banking matters. Much action during those days came from finance ministry. The joke was that all RBI top management did was to wait for phone calls from Delhi.

It is interesting that we are seeing these battlelines between the two being drawn on 19th November of all dates. We are hearing talks of Section 7 being invoked (its history) where government wants to take away powers being taken away from RBI top management.

In all likelihood, this is just sheer coincidence. But what a coincidence. If we do see government taking control on the date and day, it will be an interesting case of history coming back and biting…

IMF building case for Central Bank Digital Currencies (and mentions hundis too!)

November 15, 2018

Christine Lagarde in this speech discusses discusses pros and cons of issuing a central bank digital currency.

But before discussing CBDC, it was really surprising to see IMF chief mentioning hundis:

Let me begin with the big issue on the table today—the changing nature of money. When commerce was local, centered around the town square, money in the form of tokens—metal coins—was sufficient. And it was efficient.

The exchange of coins from one hand to another settled transactions. So long as the coins were valid—determined by glancing, scratching, or even biting into them—it did not matter which hands held them. But as commerce moved to ships, like those that passed through Singapore, and covered increasingly greater distances, carrying coins became expensive, risky, and cumbersome.

Chinese paper money—introduced in the 9th century—helped, but not enough. Innovation produced bills of exchange—pieces of paper allowing merchants with a bank account in their home city to draw money from a bank at their destination.

The Arabs called these Sakks, the origin of our word “check” today. These checks, and the banks that went along with them, spread around the world, spearheaded by the Italian bankers and merchants of the Renaissance. Other examples are the Chinese Shansi and Indian Hundi bills.

Suddenly, it mattered whom you dealt with. Was this Persian merchant the rightful owner of that bill? Was the bill trustworthy? Was that Shanxi bank going to accept it? Trust became essential—and the state became the guarantor of that trust, by offering liquidity backstops, and supervision.

Why is this brief tour of history relevant? Because the fintech revolution questions the two forms of money we just discussed—coins and commercial bank deposits. And it questions the role of the state in providing money.

Hundis has long been forgotten by researchers in India barring those history folks. Nice to see Lagarde mentioning hundis along with Sakks and Shansi..

Now to CBDC:


How does Inflation in Indian States differ with the national average?

November 15, 2018

Nice article by Sujata Kundu, Vimal Kishore and Binod B. Bhoi of RBI. It is released in RBI Bulletin for the month Nov-2018.

They look at how inflation is behaving in India’s States:

An analysis of the regional inflation dynamics in India reveals the presence of wide dispersion in inflation across states, largely driven by food price inflation. State level inflation tends to converge to the national average over time, however, validating the choice of national level consumer price inflation as the nominal anchor for monetary policy in India.

Which state has the highest average inflation and volatility? Interestingly, Southern States have higher average inflation (6.8%) compared to others:

Notably, all the southern states had higher average inflation than northern states like Punjab, Haryana, Uttar Pradesh and Uttarakhand as well as states in other regions like Maharashtra and Madhya Pradesh. Bihar recorded the highest inflation of 16.1 per cent (November 2013), while Chhattisgarh recorded the
lowest inflation level of (-) 2.3 per cent (June 2017) as against the national-level maximum of 11.5 per cent (November 2013) and minimum of 1.5 per cent
(June 2017). 

Over this period, inflation and inflation volatility did not exhibit any noteworthy co-movement, which is in contrast with the two-way causality posited in the
literature . In fact, when inflation averaged a high of 10.0 per cent in 2012-13, its volatility was at the lowest in the period of study at 0.5 per cent; volatility rose to 1.2 per cent when average inflation was at its lowest level of 3.6 per cent in 2017-18 (Chart 4a). This relationship alters dramatically, however, in the regional setting.

Unlike the all-India pattern, state-level inflation and inflation volatility co-moved during 2012-13 to 2017-18 (Chart 4b). Another interesting observation is that the states/regions that experienced high average inflation (e.g., Bihar, Chhattisgarh, Odisha and West Bengal) also recorded high volatility in inflation.

Much more in the short research paper with graphs and tables. RBI should release more and more of such type research.

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