Archive for March, 2019

China and Its Western Critics (Is China a good case for MMT?)

March 29, 2019

Andrew Sheng and Xiao Geng in this piece:

Contrary to popular belief in the West, where democratic elections are typically regarded as essential to holding governments responsible for their policies, China’s approach supports accountability. Indeed, the evidence shows that policymaking is responsive to feedback from both the Chinese people and the international community, with leaders correcting mistakes and updating outdated measures as they gain new information.

Such adaptation is supported by two annual meetings that have been held in Beijing every March since 1998: the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). At these gatherings, top officials from China’s State Council, including key ministers and the premier, create detailed reports, identifying the challenges China faces, as well as a blueprint for continued reform and opening up.

The results are shared with delegates attending the meetings and broadcast live to thousands of official delegates and Chinese and foreign reporters. These gatherings thus represent an important window into evolving Chinese policymaking and governance.

At the most recent NPC and CPPCC, Chinese policymakers weighed the backlash against the standard neoliberal economic model, based on free movement of goods, capital, information, and sometimes labor. The advanced economies and the international institutions they lead have long assumed that expanding these freedoms naturally leads to better outcomes for all.

But the neoliberal model has had grave unintended consequences, such as environmental degradation, rising inequality, and the emergence of monopolies (especially in the tech sector). On a more emotional level, globalization and openness has fueled cultural insecurity. As frustration with the advanced economies’ approach has grown, so has mistrust of the experts and elites who championed it.

In response to these anxieties, rational homo economicus has morphed into emotional homo politicus – an agent susceptible to the sirens of nationalism, tribalism, protectionism, and populism.

The result is escalating trade conflicts, rising isolationism, surging anti-immigrant sentiment, and calls for massive increases in social spending, based on concepts like modern monetary theory.

While many in the West sacrifice homo economicus to appease homo politicus, China’s leaders are trying to satisfy both. They know that neglecting the needs of homo politicus could lead to social instability and fragmentation. But they also know that they must respond to internal pressures and rapidly evolving external conditions in ways that make good economic sense.

Not every decision will turn out to be the right one. But in China, when mistakes are made, adjustments follow. While this form of accountability is not perfect, it has produced a track record that is exceptional by any standard.


So how is China trying to balance:

Despite the challenges China faces – including a high debt-to-GDP ratio and volatile stock markets – the country’s leaders have proved adept at securing progress toward these goals. Consumer price index inflation stands at 2.1%. Last year, 13.6 million urban jobs were added, underpinning an unemployment rate of just 5%, and over 18,000 new businesses were launched every day, on average. China’s international trade and payment position is largely balanced.

This is the result of a comprehensive and ever-evolving strategy aimed at improving the quality of life and work, reducing poverty, lowering the tax and regulatory burden for small private businesses, and championing green, innovative, open, and sustainable growth. For example, last year, China reduced its average tariff rate from 9.8% in 2017 to 7.5%; opened another 4,100 kilometers (2,550 miles) of high-speed railways; granted permanent urban residency to 14 million workers from rural areas; and implemented tax and fee cuts that reduced business costs by some CN¥1.3 trillion ($193 billion).

The Chinese authorities have now announced their intention to reduce the tax and social-security burden for business by another CN¥2 trillion, and to increase the fiscal deficit by 0.2 percentage points of GDP, to 2.8%, in order to counter the threat of protectionism-driven global deflation. Moreover, the NPC adopted a new foreign investment law that will reduce barriers to market entry by foreign entities and improve substantially the protection of intellectual property rights.

As the Chinese Central Bank works with the Government and is not shy about this at all, it has elements of MMT.


Why central bankers don’t understand inflation?

March 29, 2019

Frances Coppola in this piece argues that central bankers are trying to fight the demon of low inflation, which ironically they themselves have created:

Central banks have advanced all sorts of explanations for the failure of the inflation demon to awaken. Post-crisis fiscal austerity, which is a considerable drag on both growth and inflation. Globalisation, which forces workers in developed countries to compete with workers in countries where the price of labour is lower. Technological advances that threaten to replace workers with machines. The trend towards longer working lives as the population ages: recent research by the Bank for International Settlements finds that a higher proportion of older people in the workforce puts downwards pressure on wages. The rise of the gig economy, self-employment, casual, temporary and zero-hour contracts, alongside weakening union power, falling union membership and systematic dismantling of collective bargaining.

These explanations all boil down to the same thing. Labour power is much weaker than it was in the 1970s, and is still weakening due to a combination of government policies and global economic forces. Wage rises and inflation are on the floor and are expected to stay there.

Belatedly, central banks are beginning to wake up to their weakness. They have little power to raise inflation when governments are hell-bent on feeding the economic forces that are keeping it down. And although they say they would like to see wages rising, they are simultaneously signalling that if wages rise, they will stamp on them. Why bother raising wages, only to take them away again in higher interest rates?

The Federal Reserve’s Daniel Tarullo has warned that central banks are relying too much on “inflation expectations”. He advises that central banks should wait until inflation starts to rise before raising interest rates. Belatedly, they are now beginning to follow his advice. But in the fight against lowflation, central banks are largely irrelevant. Unless governments actively embark on initiatives to raise incomes and living standards, inflation will remain on the floor whatever central banks do.


Central bank communications in a post-truth world…

March 29, 2019

Not seen an central banker talk about post truth world.

Mr Mugur Isărescu, Governor of the National Bank of Romania. in this speech touches on the topic:


Hong Kong grants licences to virtual banks

March 29, 2019

I had blogged about HK looking to licence virtual banks.

Now they have given licences to 3 such banks with 5 more in pipeline:

The Hong Kong Monetary Authority (HKMA) announced today (27 March 2019) that the Monetary Authority has granted banking licences under the Banking Ordinance to Livi VB Limited, SC Digital Solutions Limited and ZhongAn Virtual Finance Limited for them to operate in the form of a virtual bank. The granting of these banking licences takes effect today.

Mr Norman T.L. Chan, Chief Executive of the HKMA, said, “We are pleased to grant the three virtual banking licences today. The introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong’s entry into the Smart Banking Era. It is a major milestone in reinforcing Hong Kong’s position as a premier international financial centre. I believe that virtual banks will not only help drive FinTech and innovation, but also bring about brand new customer experiences and further promote financial inclusion in Hong Kong.

“As virtual banks will have no physical branches, they will rely on the internet for customer acquisition and for the delivery of banking services. I believe that virtual banks will have to offer innovative and customer-centric services in order to attract customers. Moreover, in targeting the retail public and SMEs as their main client base, virtual banks should help promote financial inclusion in Hong Kong.

According to their business plans, these three newly licenced virtual banks intend to launch their services within 6 to 9 months.

After the granting of the above banking licences, the number of licensed banks in Hong Kong will be increased to 155.

The HKMA is making good progress in the processing of the remaining 5 virtual bank applications.

155 banks alone in HK.

Here is a speech by Arthur Yuen, Deputy Chief Executive, Hong Kong Monetary Authority giving rationale for their selection and so on…

International Conference on Indian Business & Economic History in Memory of Prof. Dwijendra Tripathi

March 29, 2019

IIM Ahmedabad will be hosting an international conference on Indian business and economic history in memory of Prof. Dwijendra Tripathi on August 29-31, 2019.

Here is the notice for Call for Papers:

The conference invites researchers to submit research papers and ideas to two separate tracks of the conference – PhD Student Workshop and Conference Research Papers.

PhD Student Workshop

The conference will commence on Thursday, August 29th , with a 1-day workshop for PhD students working on Indian business or economic history or keen to explore this research interest in the near future. Students may belong to any disciplinary background. The workshop will provide feedback on the student’s research topics and ideas and have sessions conducted by leading scholars of the field.

To apply, students have to email, their CV, one-page synopsis of their ongoing research and a one-page statement of interest to attend the workshop, before April 30, 2019.

Students from within and outside India are encouraged to apply for the workshop. Women and students from historically marginalized communities are particularly encouraged to apply for the workshop. MPhil and Masters’ level students can also apply if they are able to demonstrate their keenness to work in the field, and the application would require an additional reference letter from their research supervisor.

Selected students will be notified about their applications by May 10, 2019, and are expected to participate in all three days of the conference proceedings. The workshop is fully-funded and covers three days of accommodation and food on the IIMA campus. It also covers the cost of travel to IIMA, not exceeding Rs. 10,000 per participant.

Conference Research Papers
The conference theme is broad with the following suggestive themes covering the Indian subcontinent in the 19th and 20th centuries,

    • The legacy of colonial and princely states on economic development
    • Regional variations in development in historical perspective
    • Urban histories
    • Sector wise histories: eg. Aviation, Media, Advertising, Finance, Real Estate, Coal, etc.
    • Firm level histories
    • Entrepreneurial histories
    • Management histories
    • Histories of business associations
    • Technology transfer and international collaborations

The conference also invites research spanning other time periods and topics.

A 500-1000 word abstract with title and participant’s affiliation, should be submitted to , before April 30. Selected speakers will be notified by May 10, 2019, and full research papers are expected to be submitted by August 1, 2019. For the selected speakers, two days of accommodation and food related expenses at IIMA will be borne by the conference organizers.


India’s managing agency system may be dead but its spirit remains alive…

March 28, 2019

One of India’s foremost financial columnists Andy Mukherjee has this interesting piece. He links current affairs in Indian business to the managing agency system, which was a popular form of running  business in India until 1960s:

A smug, entitled business class driven by greed and hubris, but sorely lacking in resources to legitimize their control. I could be describing the India Inc. of today – or 1959. Nothing much has changed.

Jet Airways Ltd., India’s oldest surviving private-sector airline, is about to crash land. Founder Naresh Goyal neither brought in enough new equity of his own to rescue the debt-laden carrier, nor did he allow a timely sale to suitors who wanted the business, albeit without him. Jet may yet survive, but it’s touch-and-go. Or take the country’s second-largest hospital chain, put into the trauma room by its founders’ 4 billion rupee ($56 million) fraud. Fortis Healthcare Ltd. wants brothers Malvinder and Shivinder Singh arrested. Complicating matters, Malvinder has accused Shivinder of siphoning funds from the family holding company and diverting them to a spiritual guru. The whole thing is an unholy mess.

For at least six decades, scholars and policy makers have been aware of the strain placed by India’s feudal system of corporate governance on capital formation, job creation and growth. Yet the last major reform was in 1969, which ironically was also when India was nationalizing banks and lurching toward a more virulent socialism. Subsequently, globalization caught up with India, the economy opened up and attracted hundreds of billion dollars in foreign capital, but the foundations of corporate structure stayed weak. It’s only now, when the edifice is showing cracks, that it’s becoming clear a fresh coat of paint alone won’t suffice.

Back in the 1960s, “managing agencies” dominated India’s industrial landscape. The 70 companies in the Tata Group were run by nine agencies, while 49 firms in the Birla Group were managed by 13. Such was the sway of the “boxwallahs,” as the agents were pejoratively referred to, that State Bank of India wouldn’t lend to an operating company without its managing agency’s guarantee. Nevermind that a majority of these proxy controllers didn’t even have 1 million rupees in capital of their own. They were vehicles for business families to extract commissions and control empires in the garb of providing managerial expertise.

Andrew Yule, Martin Burn, W.H. Brady and MacNeill & Barry. As the names suggest, the managing agencies started out as part of the British colonial project, but about a hundred years ago ownership started to pass into Indian hands. The world wars and India’s 1947 independence hastened the switch. India eventually outlawed managing agencies in 1969, but entrenched families lost no time in gaming the corporate boards that were now in charge.

Explicit recognition of some shareholders as “promoters” has perpetuated their exorbitant privilege, and infected even firms of a newer vintage. The co-founders of Mindtree Ltd., a mid-bracket software services company, didn’t show any urgency when a large investor warned them of his intention to cash out. Now that the investor has sold to engineering firm Larsen & Toubro Ltd., the insiders are shocked, shocked that L&T is out to “decimate” Mindtree with a  $1.6 billion hostile takeover


Foreign investors believe they can navigate around India’s governance fault lines. Still, South Korea’s chaebol discount could also become a millstone for India if the grip of a handful of private interests on state institutions and economic opportunities tightens. The new boxwallahs will be much harder to shake off than the old cronies.


Is it time for India’s own version of the US Fed’s Operation Twist?

March 27, 2019

Niranjan Rajyadhaksha’s new piece in Mint asks whether India needs to do its version of Operation Twist:


How granting women property rights is itself a financial innovation..

March 27, 2019

Moshe Hazan, David Weiss and Hosny Zoabi in this interesting research show how property rights given to women lead to economic changes:

Historically, women have had property rights in South-Western Coast of India. It has been shown they have much better socio-economic status compared to other women. It will be interesting to explore whether local financial markets were also impacted due to these property rights.

Comments on dangers of recent amendments to Kenya’s Banking Act

March 27, 2019

Dr Patrick Njoroge, Governor of the Central Bank of Kenya talks about recent changes in Kenya’s Banking Act.

These changes are likely to reverse many years of hard work to curb black money, money laundering and so on. What is worse is that these changes were enacted without keeping the central bank in loop:

On October 1, 2018, following the coming into force of Section 65 of the Finance Act (2018) the Banking Act was amended to include a new Section 33C. In one stroke, Kenya was on the brink of rolling back key instruments in the fight against corruption, money laundering, and financing of terrorism, bringing to nought the hard-fought gains. The amendment refers directly to cash transactions but has far-reaching implications.

Has CBK acted to implement the Amendment? Yes, CBK first saw the amendment after it had become effective, but embarked on understanding and implementing it. To be clear, CBK had not been made aware or otherwise consulted in formulating the amendments, so we had no lead time.

  • The Amendment requires bringing together a variety of requirements in the Banking Act and other laws on deposits and withdrawals. Requirements set by banks for their customers, their terms and conditions, would also need to be wrapped in (including ATM limits, hours for accessing the bank).
  • POCAMLA also has requirements on cash transactions, and these will conflict with  the Amendment.
  • Similarly by treaty, Kenya is subject to the resolutions of the UN Security Council, including on aspects of cash transactions. The amendment would conflict with that.
  • The Amendment does not ensure the safety and soundness of bank transactions. In addition, it does not allow the needed flexibility even in cases of “clear and present” danger.

Governments continue to undermine central bank autonomy..

The return of the policy that shall not be named: Principles of Industrial Policy

March 27, 2019

What a title of a research paper: The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy!

IMF economists Reda Cherif and Fuad Hasanov in this research paper:

Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.

Hmm.. Looks like a good read.

Gulzar had earlier posted that industrial policy is coming back:


Trump nominates right-wing talking head Stephen Moore to the US Federal Reserve Board of Governors..

March 26, 2019

Did not know about this development.

Apparently Donald Trump has nominated Stephen Moore to Fed. Brad DeLong comments:

Over the course of his presidency, Donald Trump has consistently prized sycophancy above expertise in his selection of advisers and political appointees. But by nominating the right-wing talking head Stephen Moore to the US Federal Reserve Board of Governors, Trump is taking his war on expertise to a new level.

DeLong says Moore has been highly inconsistent in his views:


 In December 2015, the right-wing commentator Stephen Moore, US President Donald Trump’s pick to fill a vacancy on the US Federal Reserve Board of Governors, savagely attacked then-Fed Chair Janet Yellen and her predecessor, Ben Bernanke, for maintaining loose monetary policies in the years following the “Great Recession.”

Moore, who is not a professional economist, investors had “become hyper-dependent” on the Fed’s “zero-interest-rate policy … just as an addict craves crack cocaine.” This “money creation,” he surmised, had yielded “nada” in terms of “helping juice the economy, creating jobs, or giving the American worker a pay raise.” Worse, the United States had already “tried this before – twice – and both times the story ended badly with a pop of the bubble … in 1999-2000 and … in 2008-09.” The lesson, he concluded, is that, “Micromanaging the economy through the lever of money creation at the grand fiefdom within the Fed doesn’t work.”

Or does it? Moore himself is probably not the most reliable judge. On December 26, 2018, he savagely attacked Yellen’s successor, Jerome Powell, for raising interest rates to unwind the very approach that he had condemned three years earlier. “If you cut engine power too far on a jetliner,” he warned, “it will stall and drop out of the sky.” Moore complained that after having “risen by 382 points on hopes that the Fed would listen to Trump and stop cutting power,” the Dow Jones Industrial Average had “plunged by 895 points” on the news of another interest-rate hike. This, he concluded, was evidence that “the Fed’s monetary policy has come unhinged.”

Moore called on Powell to “do the honorable thing … and resign.” But, failing that, he hoped that Trump would simply fire the Fed chair. “The law says he can replace the Federal Reserve Chairman for cause,” Moore observed in an interview that same week. “Well, the cause is that he’s wrecking our economy.”

If Moore’s approach to legal reasoning seems deficient, one must wonder how he would approach monetary policymaking. Judging by his own statements, a three-month Treasury rate of 0.26% driving a ten-year rate of 2.3% was far too low in December 2015, whereas a three-month rate of 2.42% driving a ten-year rate of 2.55% is far too high today.


That comes as no surprise. Throughout his career as a partisan talking head, Moore’s economic analysis has never had any basis in empirical reality. To the contrary, he has repeatedly shown that he will say whatever needs to be said to please his political master.

Needless to say, Moore is wholly unfit to serve in the office to which he is being nominated. He has absolutely no business overseeing US monetary policy. The same is true of any president who would appoint him and any senator who would vote to confirm him.

Interesting times…

Botswana launches Financial Stability Council

March 26, 2019

Amidst African countries, Botswana is a rare jewel.

Botswana represents one of the few development success stories in Sub-Saharan Africa. Real Gross Domestic Product (GDP) growth averaged almost 9 percent between 1960 and 2005, far above the Sub-Saharan Africa average. Real GDP per capita grew even faster, averaging more than 10 percent a year — the most rapid economic growth of any country in the world. The crucial question is: Why has Botswana grown the way it has done, and what lessons does it offer?

This evidence-based story is an account of policy and institutional dynamics of sustained growth and development in Botswana — illuminating the role of leadership. It shows how a secure political elite has pursued growth-promoting policies and developed, modified, and maintained viable inherited traditional and modern institutions of political, economic, and legal restraint. These institutions have remained robust in the face of initial large aid inflows and spectacular mineral rents, producing a growth pattern that has been both rapid and cautious.

The nature of the Botswana developmental state is illustrated by the way in which the state mobilized development resources-especially savings, investment, and human resources, widely known as the primary drivers of economic growth, and prudently managed the economy without becoming excessively involved in the nuts. It demonstrates that through intentional policy choices and countercyclical instruments, countries can shift from aid-dependent to trade-led natural resource development (though probably with narrow-based growth), to a broader development strategy as long as the state is capable and operates within effective institutional design. Botswana’s story is sterling example of how the critical issue in development is not so much access to resources but how resources are managed.

Not interested in sitting on laurels, the country keeps doing something or the other.

Now it has launched a financial stability council. Mr Moses D Pelaelo, Governor of the Bank of Botswana explains:

Ladies and gentlemen, as I look back, the launch is the culmination of several significant steps and consultations. Among these are: first, the initial assessment by the Bank of the need and prospective role of a Financial Stability Council, articulated in the 2018 Monetary Policy Statement; second, consultations by officials within the auspices of the Bank of Botswana/Ministry of Finance and Economic Development Working Group, and also involving the Non-Bank Financial Institutions Regulatory Authority and the Financial Intelligence Agency; third, approval for establishment of the Council by the Honourable Minister of Finance and Economic Development obtained in April 2018; and fourth an inaugural meeting to consider an outline of the Macroprudential Policy Framework and review of the draft Memorandum of Understanding in September 2018.

The Financial Stability Council comprises the leadership of the Ministry of Finance and Economic Development (MFED), the Bank of Botswana (the Bank), Non-Bank Financial Institutions Regulatory Authority (NBFIRA), and Financial Intelligence Agency (FIA), institutions that are involved in developing legislation and regulations, policymaking and supervision with respect to the whole or facets of the financial sector. It is acknowledged that the respective institutions have unique statutory mandates, objectives, oversight frameworks and operational spheres, albeit mostly related.

In this regard, the Financial Stability Council is not established to usurp or dilute the role of the respective institutions, which is neither feasible nor desirable. Rather it is to share information and where, desirable, facilitate collective and coordinated approach to financial sector monitoring frameworks and crisis resolution.

Much like India’s Financial Stability Development Council. Also interesting to note that they have a seperate regulatory body for NBFI..

Move over Greenspan/Bernanke/Powell Put, time to look at Das Put?

March 25, 2019

Mint op-ed piece today:

A $5-billion, three-year dollar-rupee swap by the central bank with commercial banks to primarily increase “durable” liquidity in the system is bound to have multiple ripple effects. The first obvious outcome will be a definite increase in liquidity when RBI buys dollars and releases rupees in the market. Second, the surge of liquidity, combined with a downward pressure on premiums for near-term forward contracts, will influence interest rates in the economy. Third, RBI has often expressed its concern over rupee-dollar trades moving to the non-deliverable forward markets of Singapore, Dubai and London. This swap might draw some of that activity back to local markets. Fourth, the appreciation of the rupee since the forex swap announcement on 13 March—over 1% till 22 March—seems to indicate that India’s central bank now has a higher tolerance level for its rise against the dollar.

Despite these certain outcomes, the governor’s actions can be viewed through different lenses. In some ways, his adoption of this curious liquidity tool to increase systemic liquidity can also be seen as his way of ensuring that Indian markets do not search for new bottoms.

Till market closing on 22 March, the BSE Sensex had gained 1.7% since the swap was declared. Comparisons are being made with a market strategy adopted when Alan Greenspan was chairman of the US Federal Reserve, which came to be known as the “Greenspan put”; in simple words, players expected the Fed to intervene by easing its monetary policy every time markets hit a speed-breaker. This pretty much continued till the financial crisis erupted and forced a rethink of the Fed’s dominant tenets.

Scheduled this week, RBI’s swap will have one obvious outcome: higher dollar inflows as lower hedging costs encourage Indian companies to borrow more overseas and foreign portfolio investors find rising returns from rupee assets.

Too early to say whether there is Das Put or not. But then central bankers have pretty much boxed themselves into these put options. One is always pressurised to do something when financial markets begin to decline significantly….

Italy joins China’s Belt and Road Initiative – here’s how it exposes cracks in Europe and the G7

March 25, 2019

Winnie King, Teaching Fellow at University of Bristol explains:

While the current Italian government has not been fully unified toward China, a severe economic downturn has made the world’s second largest economy look more appealing to it. Alberto Bradanini, Italy’s former ambassador to China, has stressed that Europe’s own indecision and inability to tackle trade deficits with China (of which Italy contributed approximately €176m, or an eighth of the EU’s total trade deficit) is a key motivator behind this decision.

Italy wants to enhance its “Made in Italy” brand through increasing trade – especially in the form of exports – to China. The BRI is seen as a vehicle to achieve this. Italy offers goods (in particular luxury goods and foodstuffs) that are attractive to China’s growing middle class and increasingly affluent population.

China is also interested in investing in Italian firms. More significant, however, are Italy’s key infrastructure assets. This would enhance the transport and trading network of the BRI, giving it strategic access to Europe. Less than 2% of Italy’s sea imports come from China so there are substantial prospects for growth in that area.

A deal between Genoa’s port authority and shipping firm China Communications Construction Company (CCCC) has already been approved by the Italian government. And the port city of Trieste hopes for something similar. This would offer China and the BRI a more direct route to move goods onto the European continent and an ideal hub for accessing new rail lines and transport networks to Germany, Austria, Slovenia and other regional economies. By giving China access to its ports, Italy is hoping for infrastructure investment from China’s Asian Infrastructure Investment Bank (AIIB) – something the Italian government is trying to link to its role in the BRI.

Interesting! The game of power ensures there are no permanent allies and enemies.

Italy’s status as a G7 country is a coup for the Chinese leadership and the legitimacy of the BRI. While the prospect of Italy’s participation underscores growing fault lines in the EU’s joint approach to China, China has also been effective at dividing and conquering EU member states by targeting them individually.

So Italy’s decision to join the BRI is significant. But four years ago we saw Italy, France and Germany join China’s AIIB, contrary to US wishes. Therefore, Italy is neither the first, nor will it be the last European economy that will “go rogue” and follow its own national interest with regard to China.


Bretton Woods at 75: History and current relevance

March 25, 2019

In July 2019, BW will mark its 75th anniversary.

Arminio Fraga, a former president of the Central Bank of Brazil (1999-2002) has a piece on its history and current relevance:

So, what can we say about Bretton Woods in a world in transition?

First, with the US less dominant and less willing to provide global economic and financial leadership, systemic instability is likely to increase. As the American economic historian Charles Kindleberger famously warned, this typically occurs in transitional moments when a global hegemon is absent. Some signs of this are already visible in trade and regional tensions, growing leverage, and rising nationalism.

Second, “Bretton Woods” should now be seen to include not only the original institutions, but also more recently established global forums and regional arrangements. These mechanisms of cooperation constitute a realistic practical response to current challenges.

Third, one must ask whether developing countries will continue trying to converge with more advanced economies, and whether the expanded Bretton Woods family of institutions can remain meaningful stewards of global progress. My answers tend toward yes to both, if one takes a long-term view. Developing countries will aim to emulate the earlier successes of the Asian Tigers and Eastern Europe. And countries will prefer dialogue and cooperation to the failures of those such as Venezuela and North Korea that opted out of the global system.

Lastly, this hopeful vision may now be under threat from the disturbing shift toward illiberal and populist political regimes around the world. But history shows that liberal politics and economic policies have undoubtedly delivered more progress and peace than any other system.

Seventy-five years ago, economic policymakers gathered at Bretton Woods to create a new financial order for the postwar world. Today, their successors can still draw on some of these achievements in designing a global economic governance system for the twenty-first century.


Reliving and retracing Francis Buchanan’s 200 year old journey to figure Southern India..

March 25, 2019

This is as good a project as any to understand economic and social history in Southern India. The lessons can obviously be applied elsewhere as well:

With the fall of Tipu Sultan in 1799, the East India Company consolidated their control over erstwhile Mysore. As part of the process, they appointed Francis Buchanan, a Scottish physician and geographer, to survey parts of southern India, for which he traversed through lengths and breadths of southern India collating information, statistics, oral-histories on a range of physical, political, cultural, social and economic subjects.

Buchanan did this journey from 24-Apr-1800 to 5-Jul-1801 with his team. They travelled a distance of some 4000 km with 20-25 kms everyday. They halted at some 300 locations. Later he prepared a 3 volume based on his journeys whose title says it all:


How Russia’s central bank adopted inflation targeting and let its currency float?

March 22, 2019

Nice interview of Elvira Nabiullina, the governor of the Central Bank of Russia. She is also the first woman to head the central bank.

She discusses how Russia adopted IT in 2014 in wake of crisis and let its currency float as well:


Building a gender inclusive economy: Case of Iceland..

March 22, 2019

Katrin Jakobsdóttir, Prime Minister of Iceland has an interesting article in IMF’s F&D (Mar-2019 theme is Women and Growth).

She writes on how Iceland has tried to make women participate in their workforce:


Ancient Rome offers lessons on the importance of sustainable development

March 22, 2019

Interesting bit of history:

A changing climate reduced the empire’s resilience to a variety of shocks, including pandemics. Smallpox struck in the second century, and a virulent outbreak that may have been Ebola followed in the third. In the mid-sixth century, the Plague of Justinian—the first known incidence of bubonic plague—probably killed half of the empire’s population.

Recent evidence shows the role of climate change. The decade before the outbreak of plague saw some of Europe’s coldest temperatures in two millennia, brought about by a sequence of massive volcanic eruptions. This likely forced gerbils and marmots out of their natural habitats in central Asia, causing the bacteria-bearing fleas they carried to infect the black rat, whose population had exploded along Rome’s expansive network of trade routes.

To be sure, the fall of Rome had many fathers. It remains perhaps the most overdetermined event in human history. But it seems increasingly clear that the natural world impinging on the human world was a major culprit.

Weakened by these hostile forces of nature, the empire started to unravel in the third century. This was a period marked by persistent political instability, pressure on the frontiers, and a fiscal crisis compounded by currency debasement. After a genuine economic revival in the fourth century, the natural environment intervened once more—severe drought in Eurasia spurred the migrations of the Huns, whom Harper calls “climate refugees on horseback.” This started a domino effect of mass migration across the Roman frontier, ultimately leading to the collapse of the western empire in the fifth century. That was followed in the sixth century by the ugly trifecta of climate-change-induced crop failures, catastrophic plague, and ruinous war. It was during this period that Rome’s population fell to a mere 20,000—and the Roman forum became the campo vaccino , the cow field.

We may be far more wealthier compared to Romans but broad similarities cannot be ruled out:

The Roman Republic and the Roman Empire both fell because they failed the sustainable development test. There is a cautionary lesson for our own times in how that failure played out—a breakdown in time-honored social norms, entrenched political polarization driven by economic inequality, repudiation of the common good by elites, and environmental havoc leading to disease and disaster.

We should take this lesson to heart, especially as we hear history rhyming in ways that are eerie and disconcerting. This demonstrates the utmost urgency of achieving the Sustainable Development Goals, the global call to end poverty, protect the planet, and ensure peace and shared prosperity. The Roman experience offers a window into our possible future if we fail to act.

There are some important differences between our economy and that of ancient Rome, of course. Ours is vastly wealthier, healthier, more inclusive, and more resilient. The Romans did not have the ability to eliminate all forms of material deprivation, even though they could and should have better handled the inequalities arising from their own experience with globalization. We have it within our power to do both.

We also have it within our power to solve the problem of climate change, by far the greatest challenge of our generation. The Romans were very much at the mercy of nature. Their activity was not the driving force behind the shifting climate, so they could do little to slow or stop its march. But since human activity is causing climate change today, it can be fixed by changing our behavior—delivering a zero-carbon energy system over the next three decades.

The bottom line is that sustainable development is of enduring importance—whether we are talking about 130 BCE, 530, or 2030.

Canada’s new $10 bill delivers a history lesson: How Viola Desmond led the fight against racism..

March 22, 2019

Nice bit in IMF’s recent edition of F&D:

A successful black businesswoman is jailed, convicted, and fined for refusing to leave a whites-only area of a movie theater in 1946. Local Baptist church leaders step in to lend assistance. An appeal proceeds through the court system, but ultimately proves unsuccessful. Sixty years on, a government apology and posthumous pardon attempt to right the wrong.

A page torn from a history book recording events from the southern United States? Not quite.

While reminiscent of incidents that occurred much farther south in the early part of the 20th century, the episode transpired in Nova Scotia, one of the maritime provinces on the east coast of Canada.

Viola Desmond and her court case became an inspiration for the pursuit of racial equality across Canada. A testament to an oft neglected but marked moment in Canadian history, her likeness now appears on Canada’s $10 banknote.


When Desmond purchased her ticket at the movie theater that day in 1946, she received admission to the balcony—the seating generally reserved for nonwhite customers. But being nearsighted, and unaware of the policy, she went to sit in the floor section to be closer to the screen. A ticket taker noted her ticket was for upstairs seating, so she returned to the ticket counter to purchase a floor seat. Denied the purchase and realizing that her request was refused because of her race, she decided to sit on the main floor anyway. The police were called, and she was forcibly removed from the theater, injuring her hip, before she spent 12 hours in jail and paid the $20 fine.

While no laws existed in Nova Scotia to enforce segregation at the time, no court in the province had ruled on the legality of discriminatory policies in hotels, theaters, or restaurants. The tax on the balcony price of 20 cents was 2 cents; the tax on the floor price of 40 cents was 3 cents. In the end, Desmond was convicted of depriving the government of a penny in tax.

“In 1946, Viola Desmond took a courageous stand against injustice that helped inspire a movement for equality and social justice in Canada,” said Jennifer O’Connell, parliamentary secretary to the minister of finance, who spoke at the $10 banknote event. “More than 70 years later, we honor her as the first Canadian woman to appear on a [regularly circulating] banknote and hope her story inspires the next generation of Canadians to follow in her footsteps.”

Superb. The new vertical note also looks quite trendy:


%d bloggers like this: