Archive for July 12th, 2019

Should the Bank of Japan issue a Digital Currency?

July 12, 2019

Masayoshi Amamiya, Deputy Governor of the Bank of Japan, in this speech says BoJ has no such plans. However, it is studying these ideas for two reasons:

Today, I have had the pleasure of sharing with you my understanding on retail payments in the digital age, focusing on the relationship between central bank money and private money.

Now, I would like to give you my own answer to the question I posed at the beginning: “Why are many central banks, including the Bank of Japan, committed to researching and studying into CBDCs even though they have no plan to issue them in the near future?” I have two reasons. First, since technological innovation evolves rapidly, the retail payments market structure could suddenly change dramatically, pushing us toward a cashless society.

In some cases, the need for CBDC issuance may suddenly increase. To be able to adapt to such a situation, central banks need to deepen their understanding on the latest developments in information technologies and their applicability to CBDC. Second, as I have discussed in the latter half of my speech, through research into CBDC — or through the CBDC lens — central banks examine more fundamental questions such as: “What are the required functions of money?”; “What ways do we have of improving the complementary relationship between central bank money and private money?”; or “What ways do we have of enhancing the functionality of private digital currency?” This process can offer clues for ways in which payment and settlement systems as a whole can be improved.

The Bank will continue to examine CBDC with these two aspects in mind. In this respect, allow me to introduce two of our recent initiatives. On the technological front, the Bank is continuing research into distributed ledger technology — DLT. Project Stella, a joint research project with the European Central Bank is part of these initiatives.5 This project has resulted in three reports so far, exploring, for example, the applicability of DLT to payments using central bank deposits — that is, wholesale CBDC.

On the legal front, the Bank’s Institute for Monetary and Economic Studies set up a study group on legal issues regarding CBDC in November 2018. It identifies potential legal issues that would arise if the Bank were to issue CBDC in response to rapid developments in technology and their possible interpretations. The report will be released in due course.

The Bank will continue to work to improve the efficiency and safety of payment and settlement systems. It will examine, from various perspectives, the desirable nature of these systems, including the issue of CBDC. And this brings me to the end of my speech.

Hmm..

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50 years of Bank Nationalisaton: Why Indira Gandhi Nationalised India’s Banks

July 12, 2019

It was 50 years ago on July 19, 1969 that then PM Indira Gandhi nationalised 14 of the largest private sector banks.

Bloomberg Quint is doing a series on 50 years of bank nationalisation. Mr DN Ghosh, one of the main persons who wrote the nationalisation legislation wrote the first piece saying: Bank Nationalisation the original sin?

In the second article,  yours truly explores the political economy of several factors which led to nationalisation.

 

England and NZ: trying to be best in ODI cricket and central banking

July 12, 2019

Reflecting on my recent piece in Business Standard where I argued how England is trying to revive fortunes in One Day International Cricket and Central banking.

I wrote the piece when England was struggling to make it to semi-finals having lost to Pakistan, Australia and Sri Lanka. Somehow, England figured a way out and won the next matches against India and NZ to qualify for Semifinals.They also beat their arch rivals Australia in semis, in a manner Australia will always remember. It was as if firtunes had reversed as Aussies gave that kind of treatment to Englisy be it Test matches or ODIs. England were tested and proved critics wrong and showed their reign to top was not a fluke but years of preparation.

It is interesting that they will be playing the final against NZ which somehow puffed into semis and beat favorites India to enter the final. It has to be seen whether NZ which were favorites to win in 1992 and 2015 but lost both, win the cup without being favorites at all. They will take lot of inspiration from India’s own win against WI in 1983 final against all odds.

In the BS piece, I also argued how Bank of England is trying to regain its top position as well. For long, it was seen as a role model for central banks but stopped being one. Now it is trying to pick the tempo by ushering in several policy changes and innovations.

What is interesting is that Bank of England is also competing with its counterpart in NZ for becoming this “role model for other central banks” title. RBNZ was the first to start inflation targeting in 1989 and has pioneered quite a few things since 1989. I wrote about RBNZ here.

RBNZ no intends to become the best central bank. Its Governor Adrian Orr in a speech highlighted this statement of intent:

Over the recent period we have committed to our vision to be ‘a great team and the best central bank’, and we have embedded our new Monetary Policy Committee and policy mandate. In addition, we have reorganised our operating structure, and have been investing in our people, our stakeholder relationships home and abroad, our supervision capability and activities, our digital capability, and our payment systems and the future of cash.

Change is now business as usual for the Reserve Bank and I sincerely thank my colleagues for managing through this period of renewal. There is of course more change to come.

Just over two weeks ago, the Prime Minister and the Minister of Finance made some important announcements about progress with the government’s review of our statutory framework for financial system regulation. They announced some in-principle decisions – including introducing a deposit insurance scheme – and set out further questions for a consultation, which is going on now.

So this is a good time discuss the future of the Reserve Bank, and how the changes under consideration might promote the prosperity and wellbeing of New Zealanders and contribute to a sustainable and productive economy. Those phrases, by the way, are not my own. They come from the Reserve Bank Act and express the overarching purpose of the Reserve Bank’s many functions.

Hmm..

Interesting how the competition between the two is in both the fields, cricket and central banking!

Inflation Co-Movement in Emerging and Developing Asia: The Monsoon Effect

July 12, 2019

Patrick Blagrave of IMF in this paper looks at the monsoon effect on inflation in developing Asia:

Co-movement (synchronicity) in inflation rates among a set of 13 emerging and developing countries in Asia is shown to be strongest for the food component, partly due to common rainfall shocks—a result which the paper terms the ‘monsoon effect.’ Economies with higher trade integration and co-movement in nominal effective exchange rates also experience greater food-inflation co-movement.

By contrast, cross-country co-movement in core inflation is weak and the aforementioned determinants have little explanatory power, suggesting a prominent role for idiosyncratic domestic factors in driving core inflation.

In the context of the growing literature on the globalization of inflation, these results suggest that common weather patterns are partly responsible for any role played by a so-called ‘global factor’ among inflation rates in emerging and developing economies, in Asia at least.

 

Download Handbook of Cliometrics for free!

July 12, 2019

Just fascinating resource for students of all kinds of economics history.

Springer allows you to download Handbook of Cliometrics for free! Crazy stuff. Download all before they decide against it and drown in the fascinating chapters…

 

 


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