Archive for July 25th, 2019

Storm clouds are gathering at Central Bank of Ukraine: What a way to defend its autonomy

July 25, 2019

National Bank of Ukraine, their central bank has put up a website to show storm clouds are gathering over the central bank since 18 April 2019. The central bank is being attacked from several fronts…

After the Revolution of Dignity, Ukraine went through the perfect storm of three-way crisis, economic, banking and currency. It looked as though this was a thing of the past for Ukraine, but today we are hearing the thunder of politicians’ populism and pressure from the oligarchs again, we are seeing flashes of lightning in the form of groundless lawsuits and decisions.
Storm clouds are gathering around the National Bank, which is at risk of losing its independence under pressure, and with it – and the ability to ensure price and financial stability. This is not a private storm affecting one institution, just like the National Bank is not a private bank, but an institution working for the prosperity of every Ukrainian.
Amazing to note how the government has not asked to close this website!

The parting shot: Viral Acharya, the Deputy Governor who spoke his mind

July 25, 2019

My farewell piece for Viral Acharya in Moneycontrol:

Known as someone who calls a spade a spade, the fearless RBI deputy chose not to play second fiddle to the Governor and instead make his own mark


Every era’s monetary and financial institutions are unimaginable until they’re real

July 25, 2019

Tyler Cowen in a Bloomberg piece reflects on the 75 years of Bretton Woods. He sums up the key idea on his MR blog:

That is the column subtitle, the actual title is “The Lesson of Bretton Woods.”  Note that yesterday was the 75th anniversary of the signing of the final agreement.  Here is one excerpt:

The Bretton Woods arrangements also seemed highly unlikely until they were in place. They involved a complicated system of exchange rate pegs, capital controls and a “gold pool” (and other methods) to control gold prices and redemption ratios. What’s more, the whole thing was dependent on America’s role as global hegemon, both politically and economically. The dollar still was tied to gold, and the other major currencies tied to the dollar, but as the system evolved it required that no one was too keen to redeem dollars for gold (the French unwillingness to abide by this stricture was one proximate cause of the collapse of Bretton Woods).

I don’t think a monetary economist from, say, 1890 could have imagined that such an arrangement would prove possible, much less successful. Yet the Bretton Woods arrangements had a wonderful track record, as the 1950s and 1960s generated strong economic growth for both the U.S. and Western Europe.

At the same time, once Bretton Woods ended in the early 1970s, few people thought it was possible to turn back the clock. The system required the U.S. to be a creditor nation, to hold much of the world’s gold stock, and for countries such as France to defer to American wishes on gold convertibility. Once again, the line between an “imaginable” and “unimaginable” monetary arrangement proved to be a thin one.

As I point out in the piece, today’s arrangements of fiat currencies and (mostly) floating rates were unimaginable to most previous thinkers, including Keynes.  Here is the column’s closing bit:

So as you consider the legacy of Bretton Woods this week, remember that core lesson: There will be major changes in monetary and institutional arrangements that no one can even imagine right now. Assume the permanency of the status quo at your peril.

So true! I mean take the case of digital currency, fintech and so on..

From third world to first in class (and Who coined the term “third world”?)

July 25, 2019

Jonathan Woetzel writes a nice piece on how third world has risen over the years (HT: Conversable Economist blog):

When historians in the distant future look back at our era, the name Alfred Sauvy may appear in a footnote somewhere. Sauvy was a French demographer who coined the term “third world” in a magazine article in 1952, just as the Cold War was heating up. His point was that there were countries not aligned with the United States or the Soviet Union that had pressing economic needs, but whose voices were not being heard.

Sauvy deliberately categorized these countries as inferior: “tiers monde” (or third world) was an explicit play on “tiers état” (third estate), the ragged assembly of peasants and bourgeoisie under France’s ancien régime that was subservient to the monarchy (the first estate) and the nobility (the second). “The third world is ignored, exploited and mistrusted, just like the third estate,” Sauvy wrote. “The millennial cycle of life and death has become a cycle of misery.”

As a piece of editorial rhetoric based on the fetid geopolitical atmosphere of the time, Sauvy’s essay was on the mark. As prophecy about the course of economic progress, he could hardly have been more wrong.

“Third world” today is politically incorrect as a phrase and economically incorrect as a concept, for it fails to take into account one of the biggest stories of the past half-century: the spectacular economic development that has taken place across the globe. Since Sauvy’s essay, some (but not all) of the countries he referred to have enjoyed very rapid growth and huge leaps in living standards, including in health and education.

To cite just one metric: the number of people living in extreme poverty has fallen from more than half the global population in the 1950s, when his magazine piece was published, to just over 10 percent today, even as the total population of the world has tripled.

The changes have been so striking that we have reached a point where the very distinctions among “developing,” “emerging” and “advanced” countries have become blurred. Singapore is now the second most competitive economy in the world, according to the World Economic Forum’s 2018 Global Competitiveness Index, which also ranks Hong Kong, South Korea and Malaysia well ahead of Italy, a founding member of the G-7 club of “rich” countries. China has more billionaires than the United States and almost twice as many as the whole of Europe. Bombay’s stock exchange has a larger market capitalization than Frankfurt’s.


How these terms have outgrown themselves.  World Bank economist Antoine Van Agtmael coined the term emerging markets in 1981 which also does not make sense for some of the countries. It gives a feeling of continued emergence…

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