Archive for June, 2022

The Moral Enterprise: How Two Companies Profit with Purpose

June 30, 2022

Rebecca Henderson of HBS writes about how Unilever and Cadbury were moral enterprises:

How can government and business work together in this fractious political moment, when finding solutions to pressing problems like inequality and climate change are more urgent than ever?

Rebecca Henderson, Harvard University’s John and Natty McArthur University Professor, explores this question as an editor and contributor to a new book, A Political Economy of Justice. Her essay, one of 14 in the book, makes a case for purpose-driven firms—companies that espouse prosocial goals, beyond merely maximizing profits.

Consumers are growing increasingly aware of leaders who champion agendas like regulating carbon emissions and treating all workers equally, making this an ideal time for companies to embrace purpose along with profit, Henderson says.

Henderson says companies and societies have long had qualms about the pursuit of profit only for profit’s sake. In early capitalist Renaissance Italy, for instance, lending money was considered a sin. Plus, she points to Walmart, founded in 1962 with a mission of making consumer goods more affordable for a broader swath of low-income Americans. Her chapter, “Reimagining Capitalism: Could Purpose-Driven Firms Help to Build a Just and Sustainable World?” also explores corporate partnerships that support social good, such as one that Unilever pioneered to unite a group of companies to sustainably produce palm oil.

Here is an excerpt from Henderson’s chapter in the book, which she edited with fellow scholars associated with Harvard’s Safra Center for Ethics, including Danielle Allen, Leah Downey, and Josh Simons, and Harvard Law School’s Yochai Benkler.


The macroeconomic and fiscal impact of population ageing

June 30, 2022

Katalin Bodnár and Carolin Nerlich in this ECB paper:

The euro area, like many other advanced economies, has entered an era of drastic demographic change. Without appropriate policy responses, population ageing in the euro area is posing formidable challenges for potential growth, monetary policy and public finances. This paper examines – from a central bank’s perspective – the macroeconomic and fiscal effects of population ageing in the euro area and looks at
the main challenges ahead in the next decades.

Total population in the euro area is projected to decline as of around 2035, while the old-age dependency ratio will rise strongly in the coming 15 years, putting additional burden on pension systems.

The analysis in the paper finds that the demographic changes in the euro area present a drag on potential growth, mainly through labour supply and productivity growth – similarly to developments in Japan, which is ahead of the euro area in terms of population ageing. Precautionary savings may be higher, and the natural rate of interest lower, while the effect on trend inflation and wages are not obvious. 

Population ageing is posing a burden on fiscal policy, through upward pressure on pension spending and adversely affecting the tax bases and the structure of public revenues.

Thus, it poses significant challenges for fiscal sustainability, limits fiscal policy space and effectiveness. To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need for fiscal buffers, improved quality
of public finance and structural reforms.

Ageing and demographics is a very important area of research and action. Very little attention is paid to it..

Study of the Non-Banking Finance Companies in India

June 29, 2022

Rajeswari Sengupta, Lei Lei Son, and Harsh Vardhan in this IGIDR paper:

In late 2018, the default by a major non-banking financial company (NBFC) in India led to a credit crunch in the Indian economy. The crisis raises questions about the business model of the NBFCs, and the role they play alongside banks in the economy. In this paper we analyse the evolution of the NBFC sector in India over time and its importance in extending credit and discusses the factors that may have contributed to the 2018 crisis. We attempt to understand the advantages and disadvantages of the business model of NBFCs, and the drivers of their rapid rise and subsequent challenges in recent years. We also briefly discuss the potential impact of the Covid-19 pandemic on the NBFC sector. Drawing lessons from the past, NBFCs need to be strengthened to play an important role in India’s financial landscape.

The glories of Irish economics and economists

June 29, 2022

We often talk about Scottish enlightenment where a bunch of Scottish thinkers thought and worked on many ideas which laid the foundations of modern economic growth and industrial revolution.

Tyler Cowen blogs about the highly underrated Irish enlightenment and its famous economists:

Yesterday I mentioned the underrated Irish Enlightenment (don’t forget Toland!), today I will briefly lay out how many top early economists came from Ireland.  Here is a partial list of those economists and their contributions:

1. Richard Cantillon, 1680s-1734.  Perhaps the second greatest economist of his century after Adam Smith, he developed the ideas of entrepreneurship and opportunity cost and in general embraced common sense.  Jevons called his Essay on the Nature of Commerce in General the “cradle of political economy.”  He was a major influence on Smith.

2. Edmund Burke, 1729-1797.  Burke has been underrated as an economist, see the recent book by Greg Collins on Burke’s economic thought.  Here is a short essay on Burke’s conservative case for markets.

3. Robert Torrens, 1780-1864.  A major thinker on international trade, he developed the theory of comparative advantage before Ricardo did, and was a sophisticated analyst on a broad range of questions, including terms of trade and currency policy.  He also promoted a version of the charter city idea for southern Australia, and to this day some things in Adelaide bear his name.

4. Richard Whately, 1787-1863.  Mostly an archbishop, theologian, and philosopher, his writings on economics developed the notion of “catallactics,” namely economics as the science of exchange.

3. Mountifort Longfield, 1802-1884.  A first-rate common sense economist, and arguably the first writer to clearly state the laws of supply and demand.  He also developed a marginal productivity theory for the value of labor and capital.  The first professor of political economy at Trinity College.

5. John Elliott Cairnes, 1823-1875.  An important thinker on the methodology of the social sciences, an all-around excellent economist, and his diagnosis of the economics and sociology of slavery (it ruined and infected all parts of Southern society) was spot on.  He is sometimes considered “the last of the classical economists.”

6. Isaac Butt, 1813-1879.  Best-known for his role in Irish political history and the Home Rule movement, he produced what is arguably the first coherent account of the marginal product theory of distribution and factor prices.  He also analyzed the Irish system in terms of the economics of misallocated land, and he promoted welfare state ideas.

7. Francis Ysidro Edgeworth, 1845-1926.  One of the founders and leading lights of mathematical economics, he produced an early version of the Coase Theorem, the notion that market price converges on a competitive equilibrium as the number of buyers and sellers grows, explained the importance of tangency conditions for economic equilibrium, developed the economics of progressive taxation, fleshed out the economics of monopoly pricing, and he initiated the use of offer curves for international trade theory.

And please, none of your b.s. about Anglo-Irish, Norman, Spanish, etc. — they were Irish!  I think of these individuals as continuing the earlier Irish Enlightenment of the eighteenth century.

Social pressure in football matches: An event study of ‘remote matches’ in Japan

June 29, 2022

250 years of the first global credit crisis

June 29, 2022

Stein Berre, Paul Kosmetatos, and Asani Sarkar of NY Fed in this post:

June 2022 marks the 250th anniversary of the outbreak of the 1772-3 credit crisis. Although not widely known today, this was arguably the first “modern” global financial crisis in terms of the role that private-sector credit and financial products played in it, in the paths of financial contagion that propagated the initial shock, and in the way authorities intervened to stabilize markets. In this post, we describe these developments and note the parallels with modern financial crises.


Intense as the twin panics of 1772-73 were, authorities were able to stabilize markets and restore confidence in the economy. These events resulted in a larger role for the institutional infrastructure of finance, focused around central banks and other state institutions, and created a set of financial stabilization techniques that are still in use today. The availability of these new tools was fortuitous, since Europe was entering the period of the most profound changes in economic growth and capital investment in human history. 

Yoga day at central banks across the globe

June 28, 2022

Manasi Phadke in her humor column at Business Line looks at how few central banks are doing different Yogasanas:

  • ECB  – Vinyasa Yoga
  • Fed – Power Yoga
  • RBI – Iyengar Yoga
  • State Bank of Pakistan – anti-gravity yoga
  • People Bank of China – Yin Yoga
  • Russian Central Bank – Hot Yoga
  • Sri Lanka central bank – Hath yoga

Read the article to find out why. 🙂



Reserve Bank of India encourages cardholders to tokenise their cards: Can it encourage nudging too?

June 28, 2022

RBI issued a press release encouraging cardholders (both debit & credit) to tokenise their card information. Merchants store a lot of information about our cards on their network. This could lead to problems:

Currently, many entities, including merchants, involved in an online card transaction chain store card data like card number, expiry date, etc. [Card-on-File (CoF)] citing cardholder convenience and comfort for undertaking transactions in future. While this practice does render convenience, availability of card details with multiple entities increases the risk of card data being stolen/misused. There have been instances where such data stored by merchants, etc., have been compromised.

Given the fact that many jurisdictions do not mandate Additional Factor of Authentication (AFA) for authenticating card transactions, stolen data in the hands of fraudsters may result in unauthorised transactions and resultant monetary loss to cardholders. Within India as well, social engineering techniques can be employed to perpetrate frauds using such data.

Tokenisation helps prevent these frauds:

Given the foregoing, the Reserve Bank mandated that after December 31, 2021, entities other than card networks and card issuers cannot store card data. This timeline was subsequently extended to June 30, 2022. A framework for CoF Tokenisation (CoFT) services was also issued. Under this framework, cardholders can create “tokens” (a unique alternate code) in lieu of card details; these tokens can then be stored by the merchants for processing transactions in future. Thus, CoFT obviates the need to store card details with merchants and provides the same level of convenience to cardholders.

To create a token under the CoFT framework, the cardholder has to undergo a one-time registration process for each card at every online / e-commerce merchant’s website / mobile application, by entering the card details and giving consent for creating a token. This consent is validated by way of authentication through an AFA. Thereafter, a token is created which is specific to the card and online / e-commerce merchant, i.e., the token cannot be used for payment at any other merchant. For future transactions performed at the same merchant website / mobile application, the cardholder can identify the card with the last four digits during the checkout process. Thus, the cardholder is not required to remember or enter the token for future transactions. A card can be tokenised at any number of online / e-commerce merchants. For every online / e-commerce merchant where the card is tokenised, a specific token will be created.

Till date, about 19.5 crore tokens have been created.

To sign for CoFT:

Opting for CoFT (i.e., creating tokens) is voluntary for the cardholders. Those who do not wish to create a token can continue to transact as before by entering card details manually at the time of undertaking the transaction (commonly referred to as “guest checkout transaction”).

This is where nudging can come. Instead of keeping it voluntary, one could enroll citizens automatically into the program. They can opt out of tokenisation if they wish to. An experiment worth doing?


RBI’s RRA merits replication for other sectors as well

June 28, 2022

RBI’s Regulatory Review Authority (RRA) recently submitted its report.

My new article in Financial Express. The article analyses the various recommendations of the RRA report and argues for RRAs across sectors.

The rise of mobile broadband and advances in social media are reshaping how war is fought

June 27, 2022

Sergei Guriev in this IMF article :

Russian aggression against Ukraine is the first major interstate war of the smartphone era. New information and communication technologies are reshaping how the war is fought. The Russian government is fighting on three fronts: a kinetic war in Ukraine; a war within Russia, where antiwar protesters want to force Russian President Vladimir Putin to withdraw from Ukraine; and a war for global public opinion.

On all three, information technology matters. Within Ukraine, smartphones record both war crimes and movements of Russian troops. Within Russia, remaining social networks help organize protests and coordinate sending lawyers to support the detained. In the global information battleground, videos from both sides try to persuade third countries to accelerate or decelerate the delivery of weapons and to introduce (or help circumvent) unprecedented economic sanctions.

The idea that information and the lack of it matter in war is not new. In his posthumously published treatise On War, the famous military theorist Carl von Clausewitz emphasized the importance of the “fog of war.” War disrupts normal media reporting, greatly increasing uncertainty; thus, information that reduces—or augments—this uncertainty may substantially affect a war’s outcome.


What did the monetarists ever do for us?

June 27, 2022

Huw Pill of Bank of England in this speech:

I am tempted to start my remarks with the phrase: ‘And now for something completely different …’.

In part, this is intended to signal a change of pace. After a series of outstanding presentations of very high quality research papers, I am afraid that I will lower the tone somewhat by bringing more of a policy orientation to the discussion.

But it is also a nod to the Pythonesque title assigned to my remarks.

I understand that Monty Python was (and is) very popular in Germany. But to avoid any mis-understanding, I thought I should clarify from the outset that the title is an allusion to a famous sketch from one of the Money Python films.

To incite rebellion against their Roman rulers during the time of empire, the rebel leader – played by John Cleese – asks the question: ‘What have the Romans ever done for us?’, only to be met by a long and impressive list of achievements and contributions made by the Romans to the quality of life.

In asking a similar question about monetarism – or perhaps, more precisely, a question about the role of monetary quantities in the design, conduct, transmission and presentation of monetary policy – I seek to explore whether a similar conclusion can be drawn.

While monetarism remains unfashionable in academic and central banking circles, perhaps it has contributed more to the past, present and potential future of monetary policy than we conventionally admit.


Pictures of a Revolution: Analyzing the Transition from Global Bimetallism to the Gold Standard in the 1860s and 1870s

June 24, 2022
Johannes Wiegand of IMF in this paper:

In the early 1870s, the global monetary system transitioned from bimetallism—a regime in which gold and silver currencies were tied at quasi-fixed exhange ratios—to the gold standard that was characterized by the use of (only) gold as the main currency metal by the largest and most advanced economies. The transition ocurred against the backdrop of both large supply shifts in global bullion markets in the 1850s and 60s and momentous political events, such as the Franco-Prussian war of 1870/71 and the subsequent foundation of the German empire. The causes for the transition have long been a matter of intense debate.

This article discusses three separate but interrelated issues: (i) assessing the robustness of the pre-1870 bimetallic system to shocks—which includes a discussion of the appropriate use of Flandreau’s (1996) reference model; (ii) analyzing the transition from bimetallism to gold as a multi-stage currency game played by France and Germany; and (iii) evaluating the monetary debates at the German Handelstag conferences in the 1860s, to present a more complete narrative of the German discussion in the run-up to the transition.

From 1980s Debt Crisis to Crypto Era: Changes in IMF’s Financial Stability Monitoring and Reporting

June 24, 2022

Tobias Adrian, Fabio Natalucci and Mahvash S. Qureshi in this IMF blog post look at financial stability since 1980s debt crisis. They also point how IMF’s reports on financial stability have changed with times.

Monitoring the health and outlook of the global economy and member countries is the bedrock of the Fund’s work. This surveillance role, outlined in amendments to our Articles of Agreement first adopted at the 1944 Bretton Woods Conference, charges us with overseeing and safeguarding the international monetary system.

In the early years, surveillance focused on the macroeconomic and exchange-rate policies of member nations, but growth in international banking in the early 1970s highlighted a need to better track global capital markets and assess financial-stability implications. Consequently, the Fund started discussions with monetary authorities in major financial centers and in 1974 initiated internal reports on market developments and prospects.

Starting in 1980, the report known as International Capital Markets became our main vehicle to monitor conditions in financial markets, warn of risks, and analyze disruptions like Latin America’s debt crisis of the 1980s or Europe’s exchange-rate mechanism crisis in the early 1990s. But that era’s rapid expansion and integration of global capital markets, and the ensuing financial crises in Asia and several other emerging markets, highlighted the need to better assess systemic risks.

The introduction of the Global Financial Stability Report marked an important step toward a more comprehensive and frequent assessment of cross-border capital flows and financial market risks. In his forward to the first GFSR, the then-Managing Director Horst Köhler noted how the report had its roots in crisis.

“The rapid expansion of financial markets has underlined the importance of a constant evaluation of the private sector capital flows that are the engine of world economic growth, but sometimes at the core of crisis developments as well,” he wrote. “Opportunities offered by the international capital markets for enhancing global prosperity must be balanced by a commitment to prevent debilitating financial crises.”



Banking | Creative destruction of existing models will pose new challenges for regulators

June 23, 2022

RBI Governor Shaktikanta Das recently gave a speech at the Financial Express Modern BFSI Summit in Mumbai. Das discussed the ongoing technological disruptions in the financial sector, and how the disruptions are creating new opportunities for the financial sector. The opportunities have led to emergence of new banking models which are posing challenges for regulators.

In this moneycontrol articles, I discuss the emergence of the new banking models and challenges for RBI/regulators going ahead.

Past and present inflation are more similar than you think

June 23, 2022

Interesting article by Marijn A. Bolhuis, Judd N. L. Cramer, Lawrence H. Summers, They estimate past US inflation using today’s methodology and realise that inflation trends today are quite similar to 1970s:


Previous inflationary cycles look more volatile and responsive to Fed policy due to differences in how housing inflation was measured before and after 1983. We highlight three implications.

First, our observations indicate that the current inflation regime is considerably closer to that of the late 1970s than it appears if inflation rates are compared straightforwardly. Our corrected estimates suggest that core CPI inflation is now at levels experienced in 1979.

Second, we conclude that it is misplaced to glean the effects of monetary tightening from the published CPI disinflation Paul Volcker achieved in the early 1980s. Volcker’s rate of core CPI disinflation is significantly slower when measured using today’s methods. At the speed achieved in the 1980s, using this corrected estimate, it would take today’s headline CPI about three years to return to 2%.

Finally, many commenters have said that monetary policy works through housing – that was clearly the case in the past. Once rates stabilized shelter inflation plunged mechanically. Today, given the lag structure of shelter inflation discussed elsewhere (Bolhuis et al. 2022a), residential services are likely to be a significant hindrance to declines in headline and especially core inflation. This could be a headache for the Fed even after housing prices stop rising at double-digit rates.

Digital Currencies and Energy Consumption

June 23, 2022
IMF economists in this research note analyse energy consumption of digital currencies:

Whether in crypto assets or in CBDCs, design choices can make an important difference to the energy consumption of digital currencies. This paper establishes the main components and technological options that determine the energy profile of digital currencies. It draws on academic and industry estimates to compare digital currencies to each other and to existing payment systems and derives implications for the design of environmentally friendly CBDCs. For distributed ledger technologies, the key factors affecting energy consumption are the ability to control participation and the consensus algorithm. While crypto assets like Bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems.


Profile of Melissa Dell: Pioneers new ways of unmasking legacies of the past

June 23, 2022

IMF’s Finance and Development Jun-2022 edition profiles Melissa Dell of Harvard University:

Scholars have long wondered why some places prosper, while others do not. How do societies climb the development ladder to greater prosperity? What is the secret sauce of economic success? Why is GDP per capita in South Korea so much higher today than it is in Cambodia, which had a similar standard of living in 1960?

Questions like that have inspired sweeping, almost epic books that span centuries and continents, like Guns, Germs, and Steel, by Jared Diamond, which looks at environmental factors, and Why Nations Fail, by Daron Acemoglu and James A. Robinson, which focuses on the role of institutions. 

These questions fascinated Dell, but she wanted to follow a different path. She took a microscope to the subject, looking not at the diverging fortunes of continents and nations but of neighboring towns and villages.

“To be able to really delve into things, it helps to have that kind of local perspective,” Dell says in an interview with F&D. “By focusing on the micro level, you can get a lot more detail and granularity about what’s going on.”

One of Dell’s big contributions to the literature of development economics—and the advantage of her micro approach—has been to identify what she calls channels of persistence. 


A review of undergraduate economics curriculum in India:

June 22, 2022

Rethinking Economics India has released its review of UG economics curriculum in India.


The report shows that the undergraduate curriculum of Economics is falling short of students’ needs or expectations. Both microeconomics and macroeconomics are grounded in neoclassical interpretations of economic theory, barring a few exceptions. A dearth of readings and authors from India and countries of the Global South, as well as female authors, is largely prevalent combined with a lack of more recently published texts. Economic methodologies are predominantly based in quantitative components with less focus on application based approaches and lack qualitative elements.

While every one of the drawbacks of the extant curriculum structure potentially represents an opportunity that could promote curriculum
change for the better, we must keep in mind that universities as decision makers are constrained. The ‘rules of the game’, that is, the regulatory governance framework may act as a significant constraint to the autonomy of individual departments to structure or restructure their curricula. Questions pertaining to the governance of universities in India are outside the scope of this report. However, they do constitute an area of future research.

Very useful review..

Monetary system of future

June 22, 2022

BIS has a chapter in its Annual Report envisioning the monetary system of the future:

  • A burst of creative innovation is under way in money and payments, opening up vistas of a future digital monetary system that adapts continuously to serve the public interest.
  • Structural flaws make the crypto universe unsuitable as the basis for a monetary system: it lacks a stable nominal anchor, while limits to its scalability result in fragmentation. Contrary to the decentralisation narrative, crypto often relies on unregulated intermediaries that pose financial risks.
  • A system grounded in central bank money offers a sounder basis for innovation, ensuring that services are stable and interoperable, domestically and across borders. Such a system can sustain a virtuous circle of trust and adaptability through network effects.
  • New capabilities such as programmability, composability and tokenisation are not the preserve of crypto, but can instead be built on top of central bank digital currencies (CBDCs), fast payment systems and associated data architectures.

Despite lots of ideas on decmtralisation, central banks will remain at the centre in future too.

Industrial Revolution 4.0: Will it be different this time for India?

June 22, 2022

V. Dhanya, Rigzen Yangdol, Satyarth Singh and Mamta Dhanda (intern at RBI) in this RBI Bulletin research article analyse how Industrial Revolution 4.0 will impact India:

Technological changes in the last decade have revolutionised the organisation of industrial production. Industry 4.0 which integrates new technologies – like Internet of Things (IoT), cloud computing and analytics, artificial intelligence and machine learning — into manufacturing production processes and operations, has ushered in a new era of ‘smart manufacturing’. Having been sidelined during the previous industrial revolutions, the article explores India’s readiness in adapting to the technological developments and examines the corresponding prerequisites to benefit from IR-4.


    • The manufacturing sector in India is capital intensive, with the organised sector contributing nearly three-fourths of the manufacturing sector Gross Value Added (GVA). The sector is dominated by low and medium R&D industries, though high and medium R&D intensive industries are increasingly playing an important role reflecting scope for benefitting from IR-4.
    • At the firm level, a panel data analysis reveals firm maturity, size, profitability and technical know-how as determinants of R&D expenditure in India’s manufacturing sector.
    • Lower than average quality of physical infrastructure and human capital could be a constraint for reaping the benefits of IR-4 going ahead.

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