Archive for April 18th, 2019

Argentina’s high inflation leads people to bitcoins ….

April 18, 2019

Interesting bit of news:

Argentina’s economy suffers from chronic inflation to such an extent that no monetary measure seems to work. According to the Financial Times,

Argentina is trapped in a vicious circle. Demand of just a few million dollars in an illiquid market can weaken the peso, as has been the case since early March. Exchange rate depreciation leads quickly to increases in inflation, portfolio dollarization, and higher interest rates — now the central bank’s only means of defending the currency.

The fact that Bitcoin is inflation-resistant makes it particularly attractive in this environment.
Consequently, many see Bitcoin as a potential alternative. They are advocating, even to the government, greater integration of the cryptocurrency into Argentina’s economy.

Bitcoin has already become integrated into many business activities. For instance, in 37 cities, public transportation users are indirectly using Bitcoin to pay for their rides, while Bitcoin ATMs are becoming more conspicuous in Buenos Aires.

Most relevant, President Mauricio Macri’s administration has already shown interest in Bitcoin and, its underlying technology, blockchain. For example, in March 2019, the government announced a partnership with Binance Labs, the blockchain technology incubator of Bitcoin exchange giant Binance. At the announcement, the government promised to match 1:1 Binance investment.

This would surely please Satoshi Nakamoto!

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Learning about Federal Reserve via comics…

April 18, 2019

Interestingly, New York Fed had started comics in 1950s itself:

The New York Fed’s Educational Comic Book Series teaches students about basic economic principles and the Federal Reserve’s role in the financial system.

Created for students at the middle school, high school, and introductory college levels, the series can help stimulate their curiosity and raise their awareness of careers in economics and finance. In addition, lesson plans created for each comic book meet national and state standards for New York, New Jersey, and Connecticut.

The New York Fed has published comic books since the 1950s and is reintroducing this popular series with a modern spin. While the comic books are intended for a student audience, they are also available to the public.

There are three comics:

The Story of Monetary Policy: This comic books illustrates the importance of monetary policy and the Federal Reserve’s key responsibilities through a tour of planets that need guidance in stabilizing prices, increasing employment, and developing a healthy economy.
The Story of the Federal Reserve System: This comic book explains the Federal Reserve’s structure and key responsibilities through the story of the citizens on Planet Novus as they work to develop their own stable economy.
Once upon a Dime: This comic book tells the story of the growing economy on Planet Novus and focuses on the concepts of barter, currency, and banking.
🙂

Will Vijaya Bank merger sway electoral results in Dakshin Kannada?

April 18, 2019

The Central government ignored the protests of people of Dakshin Kannada over merger of “their Vijaya Bank” with Bank of Baroda.

Vikram Gopal reports that the ruling party will face ire of the Bunt community of the region, which formed Vijaya Bank :

In the village of Machina, about 50km from the city, a fresh coat of plaster on the board outside a Vijaya Bank branch announces that it will henceforth be called Bank of Baroda. Resident H Subbayya Shetty says it is hard to digest the fact that the bank he worked in for 34 years is losing its identity. Shetty began his career as a clerk and retired as the managing director of the bank’s housing finance department. He was also leader of Vijaya Bank employees’ union.

Over its 88-year history, the bank came to symbolise the pride of the Bunt community, starting from the pre-Independence days. In the 1970s, when the community’s lands were redistributed to tillers as part of land reforms, the bank helped the Bunts transition out of the agrarian economy.

The government mandated a merger of the public sector Vijaya Bank and Dena Bank with Bank of Baroda on April 1, to create a more competitive financial institution. It has now turned into an emotive community pride issue in coastal Karnataka — where five of India’s prominent banks were founded in the first half of the 20th century, a fact acknowledged by Prime Minister Narendra Modi at a recent rally here.

Protests were held in the region condemning the merger. The Congress is trying to cash in on the issue in Dakshina Kannada, a seat that has been the stronghold of the Bharatiya Janata Party since 1991 and which will go to the polls on Thursday, along with 13 other Lok Sabha constituencies in the state. Congress candidate, Mithun Rai, is a member of the Bunt community as is the sitting BJP MP Nalin Kumar Kateel.

Rai says the issue is important because the community feels a sense of loss. Kateel, in turn, argues that the merger was initiated by the previous United Progressive Alliance (UPA) government led by the Congress.

A major chunk of the community has supported the BJP over the past three decades, said Vijay Prasad Alva, secretary of the Federation of Bunts Associations. However, this time around there was disenchantment against two-time winner Kateel, because of his failure on this front. “Kateel should have tried to put forward the community’s concerns on the matter,” Alva said. This though would not automatically translate into support for the Congress, Alva said, because the disenchantment was against the political class as a whole.

….

The merger has been challenged legally with petitions pending before the Supreme Court. Dinesh Hegde Ulepady, a lawyer involved in the case, said the merger felt cruel “because the Bank of Baroda and Dena Bank were making losses and Vijaya Bank was turning in a profit”.

However, the real letdown, according to Ulepady, was the apathetic attitude of the major political parties. “It is not enough to hold symbolic protests,” he said, adding that there are two petitions before the SC, one challenging the failure to nominate bank employees on the board, which predated the merger. “The other is a petition challenging the merger itself,” he said.

This is Dakshin Kannada region for you. As the late Dr Thingalaya explained to me, there is enormous pride in the region over their banks. There is a reason why people are so effected by this merger and loss of identity as the region’s 5 banks are their identity.

It will be interesting to see the election results in this region. After all it is perhaps a unique moment in banking history that it could influence election results too…

 

Real effective exchange rates (REER) should incorporate Global Value Chains

April 18, 2019

Nice article by Nikhil Patel and Shang Jin Wei:

Standard calculations of the REER by most central banks and statistical agencies assume that countries export only final goods. But GVCs spread the different stages of production among different countries. They can do so thanks to technological improvements, lower trade barriers, and the closer integration of emerging markets into the global economy. Ignoring this reality can lead to substantial mismeasurement of the REER, resulting in questionable policy inferences.

To see how the standard approach could be wrong, consider a hypothetical value chain for the production of smartphones. Suppose Japan manufactures the components and ships them to China, where the phones are assembled and exported globally as finished products. Traditional REER models would assume that Japan exports final goods to China, and that the two countries are competitors. A depreciation of the Japanese yen, therefore, would help Japan’s competitiveness and hurt that of China.

In this case, however, a weaker yen would lower the price of Japanese components, which may lead to lower prices and increased demand for Chinese phones – leading to an improvementin China’s competitiveness. This example shows that the standard REER calculation is getting not only the magnitude wrong, but also the direction of change.

Hmmm…

They also explain how adjusting for GVCs lead to Chinese Renminbi showing appreciation trend compared to the oft cited depreciation trend…


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