Archive for February, 2020

The New-Old Threat to Economic Freedom: Remembering Friedman and Hayek..

February 28, 2020

Prof John Taylor writes how history lessons are being forgotten:

With politicians proposing policies that would vastly expand the size of the government and its involvement in the economy, it is clear that too many Americans have forgotten the lessons of the twentieth century. As Friedrich Hayek and Milton Friedman pointed out long ago, deviating from market principles is a recipe for disaster.

We obviously keep going in circles. Post-2008 crisis, econs wrote how market driven policies or neoliberalism was the reason for the 2008 crisis. The crisis in turn led to rise in nationalism and decline in liberalism.



Fossil-Fuel exporters must rethink monetary policy

February 28, 2020

One would imagine a topic like monetary policy to be classified under Economics and Finance in Project Syndicate.But this piece on monetary policy is classified under Sustainability!

Rabah Arzeki (Chief Economist of the World Bank’s MENA Region) argues that fossil fuel exporters should rethink mon pol:

Although many fossil-fuel exporters have recognized the need to diversify their economies, very few have succeeded. But the regulatory and technological changes now sweeping the global energy market may make the need for such a transition more urgent. Central banks should therefore work on the longer end of the yield curve to facilitate longer-term investment and economic diversification.

In addition, central banks’ response to the risk of stranded assets may influence how fossil-fuel exporters invest their wealth. Many oil exporters have accumulated vast financial assets. These countries’ strategic allocation of such assets is all the more important given the mounting risks to their main source of wealth. By looking beyond the business-cycle horizon, central banks can play a critical role in facilitating these countries’ investments in non-fossil-fuel assets.

In the face of the challenge posed by climate change, the focus of monetary policy often seems very short term. Central bankers must break this “curse of horizons” and take decisive steps to address fossil-fuel-related risks. They need to reflect on and communicate the existential threat of stranded reserves and capital, advocate the adoption of appropriate structural policies, pursue a suitable interest-rate policy, and provide supportive financial policies to encourage both economic diversification and changes in strategic asset allocation. Combating climate change while maintaining global financial stability requires nothing less.

I had posted about Australia which is a coal exporter and needs to rejig its strategy as well..

Three Ds of climate change risks for financial sector..

February 27, 2020

Christine Lagarde, President of ECB in this speech warns on climate change risks for the financial sector. She says there are 3 Ds of risks:

Climate change constitutes a major challenge, causing both threats and opportunities that will significantly affect the economy and the financial sector, depending on which carbon emission scenario eventually unfolds.

That is why central banks need to devote greater attention to understanding the impact of climate change, including its implications for inflation dynamics. At the ECB, the ongoing review of our monetary policy strategy creates an opportunity to reflect on how to address sustainability considerations within our monetary policy framework.

Today, however, I will focus my remarks on climate change-related risks for the financial sector. Broadly speaking, the main risks fall into three categories: risks stemming from disregard, from delay and from deficiency.


The transition to a carbon-neutral economy provides opportunities, not just risks. By shifting the horizon away from the short term and contributing to a more sustainable economic trajectory, the financial sector can become a powerful force acting in our collective best interest. The future path for carbon emissions and the climate is uncertain, but it remains within our power to influence it. As Lyndon B. Johnson said, “yesterday is not ours to recover, but tomorrow is ours to win or lose”.


How Did We Get Here? From Observing Private Currencies to Exploring Central Bank Digital Currency

February 27, 2020

Jesse Leigh Maniff of Kansas City Fed takes us through the long history of payments which has moved from private to government and back to private:

Has Australian economy’s luck run out: When China Sneezes, Australia catches a cold?

February 27, 2020

Carl Bildt has a nice piece in Proj Syndicate. He argues how China and climate change are posing challenges to Australian economy which has grown without a recession for 30 years!


The increasing deflationary influence of consumer digital access services

February 27, 2020

David M. Byrne and Carol A. Corrado of Federal Reserve in this paper:

Consumer digital access services—internet, mobile phone, cable TV, and streaming—accounted for over 2 percent of U.S. household consumption in 2018. We construct prices for these services using direct measures of volume (data transmitted, talk time, and hours of programming). Our price index fell 12 percent per year from 1988 to 2018 while official prices moved up modestly. Using our digital services index, we estimate total personal consumption expenditure (PCE) prices have risen nearly 1/2 percentage point slower than the official index since 2008. Importantly, the spread between alternative and official PCE price inflation has increased noticeably over time.


Sweden’s Riksbank to test technical solution for the e-krona

February 26, 2020

Gradually Sweden is getting closer to e-krona:

The Riksbank is conducting a pilot project with Accenture aimed at developing a proposal for a technical solution for an e-krona. The objective is to create, in an isolated test environment, a digital krona that is simple and user-friendly. The technical solution will be based on Distributed Ledger Technology (DLT), often referred to as block-chain technology. The main aim of the pilot is for the Riksbank to increase its knowledge of central bank-issued digital krona.


From crony capitalism to crony communism

February 26, 2020

Capitalism is often criticised for promoting growth amidst select club of industrialists/business persons.

This voxeu post by Artjoms Ivlevs, Milena Nikolova, Olga Popova shows how similar cronysim flourished in erstwhile communist countries:

Is RBI undermining its MPC by using unconventional tools like OT and LTRO?

February 26, 2020

Blogging was on a mini break.

Blogging resumes with this new moneycontrol piece (behind paywall). I argue how RBI is influencing interest rate decisions outside the Monetary Policy Committee.


Chettiars’ Temple Society Digital Library of Sri Thendayuthapani Temple, Singapore

February 21, 2020

Chettiars’ Temple Society Digital Library of Sri Thendayuthapani Temple, Singapore has put up this superb digital library. It has amazing books and accounts of the community on banking, business, temples, architecture and so on.

Welcome to the Chettiars’ Temple Society Digital Library of Sri Thendayuthapani Temple, Singapore, a temple founded in 1859 by the Nattukottai Chettiars. This collection of books and other publications it hosts focuses on being a one-stop venue for content published about the Chettiars. To find out more about them, please click here.

Just too good!

50 years of Norway discovering oil

February 20, 2020

Nice speech by Norges Bank Governor Øystein Olsen:

“We are now moving into the final phase of a period where domestic raw materials and energy sources have provided an essential basis for economic expansion. Hereafter, growth must increasingly rely on the production of finished goods in areas where we do not have a natural advantage.”[1]

The same could be said about the challenges facing the Norwegian economy today. But this quote is from 50 years ago – from the annual address by central bank governor Erik Brofoss on 16 February 1970.

The 50th anniversary of the first oil discovery on the Ekofisk field was commemorated in October last year. Aptly enough, this took place on the same day as the Government Pension Fund Global (GPFG) topped NOK 10 000 billion.

In the governor’s address on the economic situation, there was no mention of what was to become Norway’s main revenue source over the next half-century.

In hindsight, it can be said that what was to be his last annual address may not have been the most prescient. To be sure, it was still highly uncertain at that time how much oil and gas were actually hidden under the ocean floor 320 kilometres southwest of Stavanger. Not to mention, the value of that natural resource was much lower than today.


In the quote from 1970, Erik Brofoss predicted a shift away from a resource-based economy. Fifty years later the structural shift is underway. Brofoss was optimistic about the way ahead, and he was clear about what the main source of progress is as he formulated in his speech:

“Now is the time to reap the fruits of our efforts in general education and vocational training to boost human capital.”

Brofoss had high hopes for the coming generations of well-educated young people.

The young workers in Brofoss’ day are now retired, or close to retirement. In the coming years, the dependency ratio will increase. The aim must therefore be to make structural changes without further declines in labour force participation.

We also have reason to be optimistic despite an ageing population. We still have a highly skilled workforce. We have an economic policy framework that has served us well for nearly 20 years. In addition, our room for manoeuvre puts us in an enviable position. Last, but not least, we have a business sector that has already proved its adaptability, which can now also build on the expertise gained in oil production and services.

The Norwegian economy has fared well through the first phase of the structural shift away from an oil-driven economy. The sharpest downswing in oil activities may be behind us. The overall downward potential is smaller than a few years ago, and the business sector is less dependent on oil.

But structural changes take time. Companies have to seek out new markets, new businesses need to be established and workers have to move into new jobs. As long as the transition to a less oil-dependent economy is gradual, the business sector will have the chance to adapt. The challenges will be much greater if there are abrupt changes in operating conditions or policies.

Brofoss was mistaken about one point. The final phase would come many decades later than he anticipated, but is now drawing near.   

Central bank governors tend to get it right, sooner or later. Come what may!


Though, not applicable to Norway’s case but if central bank governor get things right later, fair bit of damage is done by then!

Evolution of US payments in the last 20 years

February 20, 2020

A useful summary by


Evaluating the Success of President Johnson’s War on Poverty

February 20, 2020

Did not know that US President Johnson (1963-69)  had declared war on poverty in US .

In this Federal Reserve paper Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore analyse the war and its impact:

We evaluate progress in President’s Johnson’s War on Poverty. We do so relative to the scientifically arbitrary but policy relevant 20 percent baseline poverty rate he established for 1963. No existing poverty measure fully captures poverty reductions based on the standard that President Johnson set. To fill this gap, we develop a Full-income Poverty Measure with thresholds set to match the 1963 Official Poverty Rate. We include cash income, taxes, and major in-kind transfers and update poverty thresholds for inflation annually. While the Official Poverty Rate fell from 19.5 percent in 1963 to 12.3 percent in 2017, our Full-income Poverty Rate based on President Johnson’s standards fell from 19.5 percent to 2.3 percent over that period. Today, almost all Americans have income above the inflation-adjusted thresholds established in the 1960s. Although expectations for minimum living standards evolve, this suggests substantial progress combatting absolute poverty since the War on Poverty began.




History of Frankfurt Stock exchange and linkages to monetary system

February 19, 2020

Super speech as always by Jens Weidmann:

People looking to realise their full economic potential need a stable currency.

That is something merchants already knew back in the Middle Ages, when they flocked to Frankfurt’s trade fair to trade in goods. Indeed, they came equipped with a variety of different coins. But what rates were they supposed to exchange their coins at? This question led a group of merchants, in 1585, to ask the city to set the rates. And Frankfurt actually went further still. It established a bourse to review the exchange rates at regular intervals. This move marked the “birth” of the Frankfurt Stock Exchange.[1]

More than 400 years later – in 1999, to be precise – many European currencies were replaced by a single currency. The euro has simplified trade in the internal market further still. The euro’s central promise back then, though, just as it is today, was to be stable money for people in the euro area.

That is why price stability is the primary objective of monetary policy. Since 1999, the average inflation rate in Germany has actually been even lower than the rate observed in the D-Mark era. This has truly been a success story, even if the two periods are difficult to compare.


Looking to the future and the willingness to modernise are important not only for monetary policy, they are also crucial for the financial markets. Back in the 18th century, Frankfurt evolved into a financial centre of international renown – thanks to the newly established trade in government bonds. However, Frankfurt bankers long wanted nothing to do with shares, which resulted in Frankfurt being eclipsed by Berlin in the 19th century.

Phew…Did not know this!

The United States as a Global Financial Intermediary and Insurer

February 18, 2020

Alexander Monge-Naranjo of St Louis Fed in St Louis Fed Eco Synopses:


The perils of digital health

February 18, 2020

As all the health monitoring instruments turn digital, they become a threat.

Mandeep Dhaliwal Director of the UN Development Programme’s HIV, Health and Development team writes on this digital mania:

Digital health is the buzz word that’s doing the rounds. Almost all hospitals are equipped with digital devices. The market is also flooded with such devices for personal use. That means, everything your body does – from your blood pressure and blood sugar levels to your heart rate and the number of steps you take – everything, EVERYTHING, is recorded onto digital devices. An aggregate of millions of such users from across the world makes for extraordinary data for companies that manufacture digital health devices and software.

But what if companies sell that data to, say, insurance companies? Would insurance companies offer higher premium rates to those who have blood pressure? Are they likely to sell this data to profit from it? What happens if such data are breached, and rogue elements get hold of it?

It’s needless to say that “digital health” devices bring enormous benefits – vis-a-vis efficiency, transparency and effectiveness. However, they pose considerable threats. 

This applies to all things digital.

8th NCAER C.D. Deshmukh Memorial Lecture: David Lipton of IMF speaks on India in a Changing World

February 18, 2020

Apart from RBI, NCAER also organises CD Deshmukh Lecture Series as Deshmukh was the founder father of NCAER. The lecture series started in 2013.

In 2020, David Lipton of IMF gave the lecture:

Good afternoon. I am honored by your invitation to deliver the 8th C.D. Deshmukh Memorial Lecture.

The late Chintaman Deshmukh, a towering figure as RBI governor and later finance minister, helped guide India’s economy through the immense challenges of independence. Perhaps less well known, he also holds a place in the annals of the IMF as a senior member of India’s delegation to the 1944 Bretton Woods Conference, which laid the foundations of the post-war economic order.

There, C.D. Deshmukh had the foresight to insist that the IMF and World Bank address the development needs of the countries that would soon emerge from colonialism.

John Maynard Keynes, deeply impressed by his contributions, is reported to have recommended that he run the IMF. I hope that one day we will have an Indian managing director.

Last year, at this podium, Martin Wolf spoke of the “Challenges to India from Global Economic Upheavals.” Since then, we have seen the threat of two of those upheavals recede, if not fade—the U.S.-China trade conflict and a hard Brexit. But new uncertainties always arise, casting a cloud over the global economy. For example, we are only beginning to see the impact of the coronavirus epidemic, which has struck at the heart of global value chains.

But beyond these headline-grabbing problems, governments around the world are struggling to solve a complex policy problem: how to address the secular stagnation that is reflected in anemic productivity growth, falling inflation, and weakening global trade. This is in part the legacy of the global financial crisis. But it is also the new normal of a maturing, globalized world, reinforced by aging societies in Japan, Europe and the U.S., and posing the fiscal challenge of meeting the needs of their senior citizens.

For the most part, secular stagnation is an advanced economy issue, but one with spillovers that concern the rest of the world. Moreover, secular stagnation may be a preview of coming attractions for some rising and aging middle-income countries.

That said, many of you may be correct in thinking that all of this is a long way from India, which in recent years was the fastest-growing large economy in the world. Indeed, your country—with its young and growing population, and a reservoir of untapped demand—already has shown the potential to play an increasingly important role in the global economy.

That is surely the case, despite the recent slowdown. The latest IMF forecast for the global economy underlined the impact on global growth of India’s sharp slowdown in the second half of 2019, which was caused by weak domestic demand and falling credit growth, and problems in the financial system. Clearly, there are significant balance sheet challenges that must be addressed to return to the levels of growth that India has enjoyed in recent years.

If this happens, and India achieves a sustained takeoff, your country can play a unique role. India could be in a position to help invigorate global growth, transform global patterns of trade, and spur investment and innovation. With the right policies—and a supportive global environment—India could become a source of “secular dynamism,” if you will allow me to coin a phrase. If other countries can find their way as well, secular dynamism in the developing world would become the needed counterweight to the secular stagnation of the advanced economies.

\These are the topics that I would like to focus on today: an important part of the global economy struggling with secular stagnation; how, in this setting, India and other countries can achieve sustained dynamism; and the crucial role for multilateral cooperation in preserving the integration that will best promote both of these effort.


Blockchain structure and cryptocurrency prices

February 17, 2020

Peter Zimmerman of Bank of England in a new working paper:

I present a model of cryptocurrency price formation that endogenizes both the financial market for coins and the fee-based market for blockchain space. A cryptocurrency has two distinctive features: a price determined by the extent of its usage as money, and a blockchain structure that restricts settlement capacity. Limited settlement space creates competition between users of the currency, so speculative activity can crowd out monetary usage. This crowding-out undermines the ability of a cryptocurrency to act as a medium of payment, lowering its value. Higher speculative demand can reduce prices, contrary to standard economic models. Crowding-out also raises the riskiness of investing in cryptocurrency, explaining high observed price volatility.


Post Brexit: London as a financial centre…

February 17, 2020

Nice speech by Jon Cunliffe on London as a financial centre

We are home to the largest and most complex financial centre in the world.

And it is a truly global financial centre, where global capital, liquidity and risk are pooled and managed, with the accumulation of the people, skills and the expertise necessary for such a concentration of international finance.

The City is home to around 250 foreign banks including all of the major investment banks. It is the same story for other financial sectors like asset management and insurance.

Its financial markets are truly global. 50% of the global market in swaps and 43% of forex trading takes place in London.1 Around 2.5 times as many USD are traded in the UK as in the US. It is the world’s second largest centre for asset management. And its role as an innovator in global financial services looks set to
continue. It is a global leader in FinTech.

Post Brexit things will change a bit:


Tweestorm: Rough chronology of economics since World War II

February 17, 2020

Beatrice Cherrier in a superb tweetstorm takes us through the history of economics since WW-II.

As good as it can get..

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