Archive for December, 2019

Guide to neoliberal macroeconomic policy: What to say in a panel discussion

December 31, 2019

Gita Gopinath of IMF in a recent interview listed the list of reforms India needs to undertake.

Prof. Sashi Sivramkrishna has this super chart of what all this means:




Profile of W.D. Lakshman: New Governor of SL Central Bank

December 31, 2019

W.A. Wijewardena, former DG of the Central Bank of Sri Lanka, profiles W.D. Lakshman, the new Governor of SL Central Bank.

This conversation took place in 2013 and it is still valid. This is the profile, thinking pattern and the value system of the man who has been appointed as the Governor of the Central Bank

It was 1972 and I was an assistant lecturer at the then Vidyodaya University. The permanent lecturer taking the second-year monetary economics class had fallen ill and was not to come to the university for about one month. I was asked by the Head of Department to fill in. 

My problem was that there were no good textbooks in Sinhala in national income analysis which students and I could refer to. The university library also had not stocked books in Sinhala. Then, at a leading book shop in the city, I chanced upon a collection of essays on selected topics in economics, with a chapter on national income, written by a young lecturer called W.D. Lakshman, then attached to the University of Ceylon, Peradeniya. 

The title of the book was ‘Aarthika Vishleshana’ or ‘Economic Analyses’ and on glancing through the content page, I knew that I had found the perfect book in Sinhala for teaching national income to undergraduates. 

That was how I came to know about Lakshman though I had not met him in person.

Prof Lakshman has had quite a distinguished career as an economist. He has done most things desired by an economist: building a university economics department, top researcher in SL, writing books in local language, consulting government across roles and so on..

Imagining a world without (shareholder) capitalism

December 30, 2019

Yanis Varoufakis in this proj synd piece:


How do machine learning and non-traditional data affect credit scoring? New evidence from a Chinese fintech firm

December 30, 2019

Leonardo Gambacorta, Yiping Huang, Han Qiu and Jingyi Wang in this paper:

This paper compares the predictive power of credit scoring models based on machine learning techniques with that of traditional loss and default models. Using proprietary transaction-level data from a leading fintech company in China for the period between May and September 2017, we test the performance of different models to predict losses and defaults both in normal times and when the economy is subject to a shock.

In particular, we analyse the case of an (exogenous) change in regulation policy on shadow banking in China that caused lending to decline and credit conditions to deteriorate.

We find that the model based on machine learning and non-traditional data is better able to predict losses and defaults than traditional models in the presence of a negative shock to the aggregate credit supply. One possible reason for this is that machine learning can better mine the non-linear relationship between variables in a period of stress.

Finally, the comparative advantage of the model that uses the fintech credit scoring technique based on machine learning and big data tends to decline for borrowers with a longer credit history.


Can RBI afford to play a ‘T20 match’ in 2020?

December 30, 2019

My piece in


The case for bullion banking in India

December 27, 2019

RN Bhaskar in Free Press Journal:

….what does a bullion bank do? Well, it facilitates the purchase, sale and use of standardised bullion or bullion-based derivatives. Similar to commercial banks, bullion banks provide a range of products and services, centred around deposits, advances, sales and trading. Customers span the bullion value-chain, including central banks, miners, refiners, jewellers and investors, both retail and institutional.


Bullion banking would bring all gold transactions under one umbrella. The WGC report outlines the role that bullion banks play in leading gold centres around the world. It explains how India could develop a thriving bullion banking industry over the coming years to support its overarching economic ambitions, and enable gold to play a role in this journey. It makes a case that Indian commercial banks are ready to embrace bullion as an asset class. India can reap significant benefits, both within its gold market and across the wider economy with a robust bullion banking industry, which globally makes revenues of over US$ 1.5-1.8 billion.

Significantly, China accounts for 30-40% of the global revenues (see chart on China). While tier I banks such as UBS, HSBC and JP Morgan each generate revenues of US$ 100-250 million (mn) - Source: Oliver Wyman analysis and WGC - from bullion banking, smaller, tier II banks generate revenues of less than US$ 50mn.


At almost all discussion forums, government spokespersons promise to ease the pain by removing the hurdles, and letting this industry prosper. As of now - as it has been for several decades - this remains a pious hope.


Even if income inequality is widening, health inequality is narrowing

December 27, 2019

Guillaume Vandenbroucke of St Louis Fed in this post:

The message is simple: Sub-Saharan Africa is not catching up to the rich countries. In fact, it is losing ground:

    • In 1960, its GDP per capita was 9% that of the rich countries.
    • In 2017, it was 4%.

This does not imply that sub-Saharan Africa is not growing. It simply means that it grows at a slower pace than the rich countries in addition to being poor.


There is convergence in life expectancy at birth as well, albeit it is less spectacular:

    • In 1960, life expectancy at birth in sub-Saharan Africa was about 59% that of the high-income countries.
    • In 2017, it was 75%.

Thus, the life expectancy of the poor is catching up to that of the rich.

It shows one can improve health even if incomes do not improve:


The ECB after the crisis: Existing synergies among monetary policy, macroprudential policies, and banking supervision

December 27, 2019

Nuno Cassola, Christoffer Kok, Francesco Paolo Mongelli of ECB in this voxeu piece:

RBI announces another round of Operation Twist

December 27, 2019

On 19 Dec 2019, RBI announced a surprise policy which is called as Operation Twist. My piece on the topic. In the auction on 23rd Dec 2019, OT met with success.

RBI announced another one yday (26 Dec 2019) to be auctioned on 30 Dec 2019.

How Bellary went from boom to bust?

December 27, 2019

Sugata Srinivasaraju in this Mint piece:

  • Between 2006 and 2011, Bellary saw a massive boom, until the Supreme Court banned mining in the district in 2011, when the illegalities and environmental degradation came to light
  • The dusty city in Karnataka is a symbol of how the collapse of a crony capitalist enterprise can destroy progress.

What a saga of rise and decline..

Year 2019: Was Karl Marx right?

December 27, 2019

Andrés Velasco and Luis Felipe Céspedes in this Proj Synd piece:

In Santiago, Chile, a massive graffito by the exit ramp of a brand-new, privately-built urban freeway reads: “Marx was right!” Indeed, capitalist development begets its own contradictions, as the scribbling itself attests.

Recent months have been the spring – and winter – of Chile’s discontent: peaceful marches and protests, but also plenty of looting and violence. Just as in Hong Kong and Iran, Colombia and Costa Rica, Ecuador and Peru, Iraq and Lebanon, Sudan and Zimbabwe. And, despite these countries’ diversity, and that of the local incidents that triggered the unrest, pundits and media have settled into a comfortable narrative: “2019 was a year of global unrest, spurred by anger at rising inequality – and 2020 is likely to be worse” the commentary website The Conversation confidently asserts. The Guardian adds: “Not all the protests are driven by economic complaints, but widening gulfs between the haves and have-nots are radicalising many young people in particular.” Even the staid Financial Times concurs: “Inequality in ‘stable’ Chile ignites the fires of unrest.”


Bottom line: successful emerging economies should adopt aggressive anti-monopoly policies if they wish to remain successful. Many, including Mexico and Chile, have. But here’s the rub: the new, more stringent standards will reveal unending collusion scandals, which will fill the headlines and ignite public anger long before more competition produces the innovation and higher incomes to placate that anger. The price of success in fighting monopoly may be more, not fewer, street demonstrations.

Now, Marx and Engels did not just claim that capitalist development engenders its own contradictions. They also concluded that those contradictions could be overcome only through the “forcible overthrow of all existing social conditions.” The current wave of protesters has not overthrown much yet (except for Bolivia’s president, who was found to have stolen an election). It is up to governments to carry out – and soon – the reforms that can prove Marx and Engels wrong.

Revival of Marxism?

Mormons and Money: A messy history of church finances and establishing an anti-bank

December 27, 2019

This piece discusses the case of how Mormons in Ohio set up a bank. As they did not get permission, they called it anti-bank:

From my vantage point as a historian of Mormonism, this news marks a new twist on an old story. For nearly two centuries, the church has conducted its finances in ways that defy the expectations Americans have for religious organizations.

Consider what happened in the summer of 1837, when the fledgling church teetered on the brink of collapse.

At the time, Joseph Smith and many church members lived in Kirtland, a small town in northeastern Ohio. The Smith family had moved there in the early 1830s, seeking a safer gathering place for church members in the face of persecution in New York state.

Smith and his followers began building a temple in Kirtland. The Saints dedicated their temple in 1836, but the project left Smith and others deep in debt. Like many communities in antebellum America, Mormon Kirtland was land-rich and cash-poor. A lack of hard currency hampered commerce. 

Smith and his associates decided to start their own bank to solve their financial woes. The circulation of bank notes, they thought, would boost Kirtland’s economic prospects and make it easier for church leaders to satisfy their creditors.

The idea of Mormon leaders printing their own money wasn’t as crazy as it sounds in 2019. The United States still lacked a uniform currency. A host of institutions of varying integrity – chartered banks, unchartered banks, other businesses and even counterfeiting rings – issued notes whose acceptance depended on the confidence of citizens who might accept or refuse them. 

Mormon leaders bought engraving plates for printing bank notes and asked the Ohio state legislature to charter their bank. The Mormon proposal went nowhere in the legislature.

At this point, church leaders took a more fateful and dubious step.

They had collected money from investors and had already begun printing notes of the “Kirtland Safety Society Bank.” Instead of shutting down the operation when the charter failed to come through, they doubled down. Worried about the legal risk of running an unchartered bank, church leaders altered the notes to read “anti-Banking-Co.”

The anti-bank not surprisingly failed:


Wakanda, Westeros, District 12 and the economics of progress

December 27, 2019

Blogging has been weak due to the holiday season. Belated X-mas wishes to all.

Superb piece by Niranjan who looks at works of fiction to figure economics:

A year of trade wars has ended with a dash of delicious irony. The US department of agriculture recently listed Wakanda as a free trade partner. The mistake was soon rectified. Wakanda, for those who came in late, is a fictional country that is ruled by the Black Panther, one of the many superheroes from the Marvel universe of Captain America, Iron Man, Hulk and Thor.

The Wakanda story offers some interesting economic insights, as do many other pop culture classics. This African country was hit by a meteor full of vibranium many centuries ago. Vibranium is the source of massive amounts of kinetic energy. Access to this miraculous metal makes Wakanda the most technologically advanced country in the world. One can think of the meteor strike as a positive productivity shock that unleashed economic growth in Wakanda.

The global experience is quite different. Countries that suddenly discover raw material usually struggle to climb the technology ladder. Easy access to revenue from mining usually destroys the incentive for governments to foster a private economy led by innovation. This “resource curse” has been observed across wide swathes of the world. Prosperous countries also need inclusive institutions, state capacity, the latest technology and a trained labour force. How has Wakanda broken through the resource trap?

More in the piece..

After Hong Kong, Singapore to licence digital banks: Digital full bank and Digital wholesale bank

December 24, 2019

After HK licencing virtual banks, Singapore will also licence 2 Digital full banks and 3 Digital wholesale banks:

MAS announced on 28 June 2019 that it will issue up to two digital full bank (DFB) licences and three digital wholesale bank (DWB) licences. These new digital banks are in addition to any digital banks that Singapore banking groups may already establish under MAS’ existing internet banking framework.

The digital bank licences will allow entities, including non-bank players, to conduct digital banking businesses in Singapore. These new digital bank licences mark the new chapter in Singapore’s banking liberalisation journey, and ensure that Singapore’s banking sector continues to be resilient, competitive and vibrant.

    • A DFB will be allowed to take deposits from and provide banking services to retail and non-retail customer segments.
    • A DWB will be allowed to take deposits from and provide banking services to SMEs and other non-retail customer segments.

Race to digital financial centre remains hot…

Exploring anonymity in central bank digital currencies

December 24, 2019

Anonymity is a big issue in digital currencies as digital transaction eave their footprint for governments to track.

This ECB note shows how anonymity is possible in digital currencies:

The ongoing digitalisation of the economy represents a major challenge for the payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFTregulations). Under the coordination of the ECB, the European System of Central Banks (ESCB) has established a proof of concept for anonymity in digital cash – referred to here as “central bank digital currency” (CBDC).

That proof of concept is part of the ESCB’s ongoing technical research on CBDC and the aim is to contribute to the broader discussion on the topic. The work carried out is not geared towards practical implementation and does not imply any decision to proceed with CBDC. The ECB will continue to analyse CBDC with a view to exploring the benefits of new technologies for European citizens and in order to be ready to act should the need arise in future. The prospect of central bank initiatives, however, should neither discourage nor crowd out private market-led solutions for fast and efficient retail payments in the euro area.

The proof of concept drawn up by the ESCB demonstrates that it is possible to construct a simplified CBDC payment system that allows users some degree of privacy for lower-value transactions, while still ensuring that higher-value transactions are subject to mandatory AML/CFT checks. That proof of concept boasts several novel features developed by the ESCB’s EUROchain research network (with the support of Accenture and R3) using distributed ledger technology (DLT).

It provides a digitalisation solution for AML/CFT compliance procedures whereby a user’s identity and transaction history cannot be seen by the central bank or intermediaries other than that chosen by the user. The enforcement of limits on anonymous electronic transactions is automated, and additional checks are delegated to an AML authority. This is achieved using “anonymity vouchers”, which allow users to anonymously transfer a limited amount of CBDC over a defined period of time.

Although there is no immediate need to take concrete steps towards the issuance of CBDC in the euro area, the proof of concept will be instrumental in any assessment of (i) how CBDC could work in practice and (ii) how the specific technical features of such an initiative will affect its potential implications for the economy.

Interesting development….

Exiting low inflation traps by “consensus package” between different stakeholders: Keeping radical policies such as MMT and helicopter money away

December 23, 2019

Luiz Awazu Pereira da Silva and Benoit Mojon in this speech/paper:

After several years of low inflation in spite of extremely low interest rates, it is time to explore alternative ways to lift inflation closer to the 2% target. We argue that social partners and governments should seek a “consensus package” that combines pro-growth fiscal policy and nominal wage increases. Such “consensus packages” have played a central role when we needed to break away from high-inflation equilibria. Striking successes of such approaches include Israel, France, and Italy in the early 1980s or more recently Spain in 2012 and Finland in 2016. The consensus approach would be decisive to exit the current low-inflation trap.

Its implementation, from wage inflation to price inflation is, albeit complex, less uncertain than alternatives. It is preferable to more wait-and-see with low interest rates forever – which might threaten financial stability – or alternatives that have emerged recently in the public debate such as “helicopter money” or modern monetary theory (MMT).


Radical is in the mind. Today’s unconventional mon policy was once radical and so was Negative interest rates but are fairly normal. Meanwhile, Paul Krugman recently mentioned MMT for lack of fiscal crisis in UK and US without really naming it.


45 years of Central Bank of Barbados: 1972-2017

December 23, 2019

Central Bank of Barbados has released a book on its website (freely available). The book is written by Harold Codrington, retired deputy governor of the Central Bank of Barbados where he worked for 37 years.

Both Sides of the Coin tells the history of the first forty-five years of the Central Bank of Barbados. It outlines the Bank’s role and function, explains its operations, and details how its employees helped to fashion a modern society and economy and build an institution of which all Barbadians can be proud. As Professor Andrew Downes commented “readers would be engrossed in the intricacies of economic policy making from a central bank perspective.”

CBB Governor Cleviston Haynes gives a speech on the occasion:


Indian macro review: There are none so blind as they who will not see

December 23, 2019

Prof Pronab Sen in this IdeasforIndia piece:

Based on Government of India’s data, the government and the community of economists in India have come up with different narratives about the position of the Indian economy. In this post, Pronab Sen highlights the differences between the two narratives. He also expresses concern over the kind of response government is taking to combat the current economic slowdown, which is fully consistent with its own narrative and completely ignores the other. 

On booming stock markets?

What about the booming stock markets? Surely this is a reflection of the fundamental strength of our industry!  Sadly, not so.  First of all it needs to be realised that the stock markets represent only about 4,000 listed companies out of 1.3 million active companies registered with Ministry of Corporate Affairs and more than 60 million unregistered non-farm enterprises. It is, therefore, quite possible that the large corporates are doing fine even as the rest are in deep doldrums. Second, FII investments in the Indian stock markets are not determined so much by the absolute performance of the concerned companies, but by the relative performance of Indian corporates compared to their global peers. Finally, in the last one year or so the RBI has pumped in an enormous amount of liquidity into the economy through aggressive open-market operations (OMOs). Most of this money has not found its way into the banks and non-bank financial companies (NBFCs) to finance investment, but into speculative activities in the stock market. What we may be seeing, therefore, is a potentially unsustainable bubble, and not an affirmation of the strength of corporate India.

Tata Mutual Funds has superb resources for investor education

December 23, 2019

I just learnt via this article that Amar Chitra Katha folks have lent their expertise to Tata Mutual Fund for developing material for investor education.

I just saw the materials on Tata MF’s website. I must say most of them are quite good. Prof Simply Simple tells you about several economics and finance concepts in a really easy manner. Suppandi series is a classic.

I particularly liked the audio series Ishq bhi Risk bhi. It is a hilarious love triangle which has lessons of mutual funds and systematic investing nicely woven in the script!

Really nice Tata MF folks!

Making Business History popular: The Amar Chitra Katha Way!

December 23, 2019

Laudatory initiative by Amar Chitra Katha. After taking history to people via their super popular comics, they have decided to feature business history as well.

TV Jayan of Hindu BL reports (HT: Good Friend Rohit Chandra):

Tatas, which spans 150 years? If you want to do that in a jiffy, you may turn to a colourful, 30-page comic book, brought out by the makers of the iconic Amar Chitra Katha.

Turning a new leaf in its 50-odd-year existence, ACK Media, known for its popular comic book brands Amar Chitra Katha and Tinkle, has come out with an illustrated comic book that gives a flavour of the broad history of India’s most prominent corporate house.

“The Tata comic book was a commissioned project for Tata Sons. They had approached us to do this as part of their 150th anniversary celebrations last year,” said Kuriakose Saju Vaisian, Editorial Director for Digital and Brand Solutions, ACK Media.

The Tata Story is not available in book stalls, but readers can solicit a copy from Bombay House, headquarters of the Tata Group. However, two other titles — on Jamsetji Tata and JRD Tata, two legends who played a big role in building the Tata empire, — are available on sale.

“It may be a commissioned project. But, we still do proper research to ascertain the facts,” said Vaisian, adding that ACK was open to “the idea of doing more such projects in the future with other corporate houses, provided budgets permit.”

He added, “We hope that such projects contribute handsomely to our bottomline in the years to come.”

More such projects are in pipeline.

I found the ACK on JRD Tata and GD Birla in

Nice bit. I guess more corporates will be interested in similar ventures for promoting and writing their history..

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