Archive for July 8th, 2020

How the 1991 reforms changed our lives and who gets the credit?

July 8, 2020

Puja Mehra’s podcast Everyday Economics is rolling on.

The new podcast is with Mr. Jairam Ramesh who discusses 1991 reforms and also tells us how Indian political economy works or does not work.

One may agree/disagree with Mr. Jairam Ramesh but the conversation is quite interesting. How different political actors come together both by choice and reluctance. Indian political economy becomes even more interesting given the scale of diversity..

Evolution of Monetary policy framework in India: Mid-1980s to today

July 8, 2020

Prof Pami Dua in a recent paper in Indian Economic Review:

In 2016, the monetary policy framework moved towards flexible inflation targeting and a six member Monetary Policy Committee (MPC) was constituted for setting the policy rate. With this step towards modernization of the monetary policy process, India joined the set of countries that have adopted inflation targeting as their monetary policy framework. The Consumer Price Index (CPI combined) inflation target was set by the Government of India at 4% with ± 2% tolerance band for the period from August 5, 2016 to March 31, 2021.

In this backdrop, the paper reviews the evolution of monetary policy frameworks in India since the mid-1980s. It also describes the monetary policy transmission process and its limitations in terms of lags and rigidities. It highlights the importance of unconventional monetary policy measures in supplementing conventional tools especially during the easing cycle. Further, it examines the voting pattern of the MPC in India and compares this with that of various developed and emerging economies. The synchronization of cuts in the policy rate by MPCs of various countries during the global slowdown in 2019 and the COVID-19 pandemic in the early 2020s is also analysed.


Comparing the financial centres of Tokyo, Singapore, and Hong Kong in FX Markets

July 8, 2020

Washimi Kazuaki and Kadogawa Yoichi of BOJ in this research article:

In recent years, turnovers of Foreign Exchange (FX) trading in Singapore and Hong Kong SAR have outweighed those of Japan, and the gap between the two cities and Japan continues to stretch. The two cities consolidate trading of G10 currencies by institutional investors and others by advancing electronic trading.

Additionally, a number of treasury departments of overseas financial/non-financial firms are attracted to the two cities, contributing to the increasing trading of Asian currencies in tandem with expanding goods and services trades between China and the ASEAN countries.

this juncture, FX trading related to capital account transactions is relatively small in Asia partly due to capital control measures. However, in the medium to long term, capital account transactions could increase, which would positively affect FX trading.

Thinking ahead on post-COVID-19, receiving such capital flows would positively impact on revitalizing the Tokyo FX market, thereby developing Japan’s overall financial markets including capital markets.

Graph 1 in the article shows how Singapore overtook Japan in FX activity in 2008 and HK in 2013. The differences have been widening..

Webinar: Ancient Indian Antecedents to Economic Thought

July 8, 2020

Prof Satish Deodhar of IIMA to speak on the topic on 11 July 2020 at 4 PM.

Interested folks can register here.

Ukraine Central Bank moves from one crisis to another

July 8, 2020

One was thinking that during the pandemic phase, governments will let central banks function fairly autonomously. After all, the governments are caught up with several problems of their own and have little time to interfere in central bank affairs. Moreover, as most central banks are following highly easy monetary policies, the governments would be happy as they often intervene when central banks are following tight policies.

Given this, the case of National Bank of Ukraine (NBU) which is the country’s central bank is one of those exceptions.

NBU’s Governor Yakiv Smoli resigned amidst high drama last week on 1 July 2020. His resignation letter stated: “For a long time, the National Bank of Ukraine has been under systematic political pressure. This makes it impossible for me, as the Governor, to effectively carry out my duties as the head of the National Bank of Ukraine and interact with other government agencies”.

On 3-July, Ukrainian Parliament approved his resignation with 286 members voting in favor in a 450 member Parliament. Smoli defended his tenure in the Parliament saying he along with members of the NBU Board “have been a shield that has protected our technocratic and apolitical institution from the influence of political forces.” However, he was forced to resign due to relentless pressure from numerous court cases, public protests outside homes of Board officials etc. He added that his resignation does not imply NBU has lost its independence.  His resignation was a mark of protest that the red line between central bank and government is about to be crossed.

The Smoli resignation becomes even more intriguing as the Parliament noted his commendable performance in keeping inflation at 5% whereas it was highest in the world in 2015 at 272%! They also noted that macroeconomic and financial conditions have been stable. The question is why did he resign and allowed to go despite doing reasonably well in his short 2-year tenure?

Infact, none of this is really a surprise for those watching Ukraine central bank. This blog has written several times on the Ukraine central bank.

The story starts much earlier in Dec-2016. A Ukraine based bank named PrivatBank ran into trouble leading to government nationalizing the bank. NBU was in the centre of the the nationalization as the central bank’s investigation showed that the bank was under trouble due to fraud in the bank. Ukraine’s oligarch Ihor Kolomoyskyi who owned the bank was accused of the fraud worth USD 5.5 billion.  His assets were frozen in Kolomoyskyi appealed against the Nationalisation in the court. In an interesting twist, in 2019 the Court ruled that Nationalisaiton of PrivatBank was illegal. People accuse Kolomoyskyi of influencing the judiciary.

In all this, Kolomoyskyi ran a vicious campaign accusing NBU of cooking the books. He using his financial muscle organised political and people’s protests against the central bank. So much so, the predecessor to Governor Smoli – Valeria Gontareva – had to also resign amidst serious public protests. Gontareva was appointed as the Governor during the nationalization, she was seen as key to the decision.  Gontareva received coffins outside her home as threats!  Even after her resignation, she was personally attacked in London and her home in Ukraine was burnt.

The home arson act led the Board of NBU to term it as Terror and an attempt to “intimidate reformers, past and present, and to paralyze our activities, to silence us”.  

The NBU added it will not be silent. The central bank has shown a lot of courage amidst constant pressure from several parties. In 2019, they developed a webportal named Storm ( which has a dashboard which shows pressure points on the central bank and is updated every day. As of 6-Jul-2020 (at date of writing this article), the central bank is dealing with 32 political declarations, 14 oligarch declarations. 39 court decisions and 9 lawsuits! Central banks usually have dashboards on inflation, growth, financial stability and so on. This dashboard is totally of a different kind!

To sum up, the saga of Ukraine central bank has upped the friction game between central banks and governments. The central bank’s fight is not limited to government but with courts, oligarches and even public.

The Government has appointed Kateryna Rozhkova one of the Deputy Governors as the Acting Governor of the Central Bank. Smoli was also appointed as the Acting Governor after the resignation of Gontareva and then confirmed as the full-time Governor. It has to be seen whether Rozhkova will also be confirmed as a full-time Governor. In normal times, Rozhkova could have picked the adline from Hero Scooters and say “why should boys have all the fun”! But these are highly tough times. He onareob is that of a fire-fighter who has to fight multiple fires with a single hosepipe with hardly any water to extinguish the fires.


Gontareva responds to Smoli’s resignation

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