Archive for August 18th, 2022

Privatisation of Public Sector Banks: An Alternate Perspective

August 18, 2022

In the Aug-2022 bulletin, RBI researchers Snehal S. Herwadkar, Sonali Goel and Rishuka Bansal present an alternative perspective to big bang  privatisation of public sector banks;

Privatization of public sector banks (PSBs) has been widely viewed as a key area of pending reforms in India. This article empirically examines the performance of PSBs relative to private sector banks (PVBs). Using data envelopment analysis (DEA), it finds that while PVBs are more efficient in profit maximization, their public sector counterparts have done better in promoting financial inclusion.

The labour cost efficiency of PSBs is higher than PVBs. Empirical evidence also suggests that lending of PSBs is less procyclical than PVBs and thus PSBs help the countercyclical monetary policy action to gain traction.

Against the backdrop of these findings, a big bang approach of privatization of these banks may do  more harm than good. The government has already announced its intention to privatize two banks. Such a gradual approach would ensure that large scale privatization does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission.


Power, philosophy and heroism of central bankers

August 18, 2022

David Marsh of OMFIF in this article reviews this new book The Money Minders by Jagjit Chadha, director of the National Institute of Economics and Social Research

Tragedy and triumph habitually linger close together. In his book, Chadha voices the hope that ‘behind the scenes’ recalibration of central banks’ instruments and models will allow monetary policy-makers to carry out a ‘heroic role… to avoid Athenian tragedy’. In a similar inflation context to today’s, Arthur Burns, the supremely unheroic Fed chairman in 1970-78, gave a 1979 valedictory  lecture on power and philosophy in which he reflected on central bankers’ ‘anguish’ – the prelude to a successful (but painful) assault on price rises by Paul Volcker. The best central bank governors do not need to (and probably should not) be heroes. But worldwide central bank politicisation puts heroism – and, if necessary, willingness to die a martyr’s death – somewhat higher up the list of their necessary attributes.

A bit overstretched praise for central bankers?

One high-paid occupation where the gender wage gap has disappeared: Vice Chancellors of the UK’s universities

August 18, 2022

Ray Bachan  and Alex Bryson in this voxeu column

The gender wage gap tends to be larger among high earners, and is particularly acute among academics. But for one occupation, this trend no longer holds – the gender gap among Vice Chancellors running UK universities has disappeared. This column finds no evidence that the quality of women entering the profession has risen. Instead, hiring practices have changed. A university’s success is increasingly reliant on attracting and retaining top talent, and the visibility of Vice Chancellors’ pay makes unequal treatment in the top jobs transparent, resulting in substantial disadvantages for institutions that discriminate.

The economics of central bank digital currency

August 18, 2022

Toni Ahnert, Katrin Assenmacher, Peter Hoffmann, Agnese Leonello, Cyril Monnet and Davide Porcellacchia in this ECB paper:

This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods.

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