Archive for the ‘Central Banks / Monetary Policy’ Category

Vera Smith’s five reasons for central banks : Are They Any Good?

February 23, 2017

I doubt how many of today’s monetary scholars have read Vera Smith’s dissertation- The Rationale for a Central Bank? What must have been a must read some years ago is hardly part of any course these days. The thesis was written under Hayek’s supervision and looked at reasons behind formation of various central banks.  We take central banking for granted without looking at various ways in which they come in different countries.

Karl-Friedrich Israel has a piece in Mises Institute which looks at five reasons given by Smith for having a central bank. Smith gave these reasons during GOld Standard days. After many years, do the reasons remain valid?

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The 10 rupee coin chaos in Karnataka and the fake Rs 2000 note from Children Bank of India..

February 22, 2017

The RBI chef recently said it is important to be thick skinned in such jobs. He also added that “everyone has agreed that not just the RBI, but the wider banking system has done a “Herculean job” over the last few months. Well it is fine to be thick skinned and congratulate oneself, but it is also important to respond to what is going on. However, thick skinned does not mean one becomes insensitive and stops responding completely.

Ever since the central bank agreed to unleash the demonetisation, the Re 10 coin has been one of the unintended victims. There are repeated rumors that this Rs 10 coin is not legal tender. It even got a rare response from the Central Bank on Nov 20 2016 that there is no such case and Re 10 remains legal. But no repeated assurances after that.

So once again the rumors built in Karnataka and no one is accepting the 10 rupee coin. The media reported this on 10 Feb but there is no official notice from the central bank. So people are not accepting the Rs 10 coin in Bangalore (not sure about other regions in the state) and it has been nearly 10 days:

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Bond traders betting on Euro break up..

February 22, 2017

Joe of Bloomberg points to this interesting article. The article shows how investors anticipating some exits from Euro are buying short term German bonds. Though, the risks are not as large as seen in 2010 period.

However, the sources of concerns are different. He adds that this time the risks are from political troubles and Draghi’s 3 magic words “whatever it takes” will not help:

Once again, traders are placing bets on a breakup of the euro area. Investors are piling into short-dated German government bonds, which would presumably be the safest of safe havens if calamity were to strike.

But is the euro really at risk of a breakup? You’d think, perhaps, that if the currency survived 2010-2012 then it can survive pretty much anything. And obviously at this point (at least going by peripheral spreads) investors aren’t anywhere near as concerned as they were back then.

But one thing to consider is that the problems faced back then by Europe were essentially about monetary architecture. Governments lacked a fiscal union and a central-bank backstop, exposing them to the whims of bond vigilantes. Mario Draghi solved the problem in 2012 with his “whatever it takes” speech.

This time, the stresses building in Europe are perceived as more political. Anti-euro factions are on the rise while mainstream center-right and center-left parties are seeing their support melt away. As risk transfers from the monetary realm to a political one, these problems won’t go away with three simple words from a central banker.

Hmm..

Evolution of currency denominations in India – From Rupee 1 to Rupees 10000

February 21, 2017

I came across this wonderful book – The Indian Financial System (1985) by RK Sheshadri, former Deputy Gvernor of RBI (1973-76). It is perhaps one of the most useful books to understand how Indian monetary and fiscal system has evolved over a period. It has amazing amount of information and facts which helps one know many aspects of Indian macroeconomic system and not just financial system.

From the book and other data available with RBI, I tried to draw a timeline of the various currency denominations in India. I have also updated it as his analysis ends in 1985.

This is how the timeline looks:

  • 1861       Paper Currency Act allowed denominations of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1000.
  • 1871       Allowed Rs 5 and Rs 10,000 which were issued in 1872.
  • 1910       Rs 20 discontinued as not much in demand. Reintroduced in 1972.
  • 1917       Re 1 introduced due to shortage of silver; discontinued in 1926.
  • 1918       Rs 2.5 issued for the same reason; discontinued in 1926.
  • 1935       Issue of Rs 50 discontinued due to lack of demand, reintroduced on 17-May- 1975.
  • 1940       Re 1 reintroduced.
  • 1943       Rs 2 introduced.
  • 1946       Demonetisation of Rs 500 and upwards.
  • 1954       Reintroduction of Rs 1000 and 10000 along with a new Rs 5000 denomination.
  • 1978       Demonetisation of Rs 1000 and upwards.
  • 1987       Reintroduction of Rs 500.
  • 2000       Reintroduction of Rs 1000.
  • 2016       Demonetisation of old series of Rs 500 and Rs 1000. Reintroduction of new Rs 500 and a new denomination Rs 2000.

Interesting to note that we had Rs 2.5 albeit for a short time as well.

Of all the denominations, Re 1 is the most interesting. It was first planned to introduce the note in 1893 but did not happen. It was finally issued in 1917 due to shortge of silver. As silver prices declined in 1920, these notes withdrawn in 1926. The notes were again printed in 1933 (in England) as silver prices rose dur to Silver Purchase Act 1934. However, the crisis receded and notes were not issued.

Though they were issued on 1940 due to again – shortage of silver. The issuance was done under the Currency Ordinance (1940). AS the ordinance was made during World War II, India and Burma Emergency Provisions Act 1940 amended the the 9th schedule of Government of India Act (1935). This allowed continuance of all the ordinances issued during World War II. Thus, it continues to provide the authority to Government to issue Re 1 note.

So much so, the Government stopped printing Re 1 notes a while ago, the ordinance remained much to surprise for lawmakers:

Remember the Re1 note, or the last time you saw it?

It may well have gone out of print, but an ordinance promulgated to facilitate its birth in 1940 is still in force, despite the fact that the Constitution grants no more than six months of life to an ordinance.

Notably, the currency ordinance issued by the colonial British government to print the Re1 note is going to survive, as it did two bids earlier when a finance ministry panel in 1997 and then the law commission in 1998 recommended its repeal on the ground that the note is no longer printed.

The parliamentary standing committee on finance stumbled upon the currency ordinance, 1940, recently while examining the coinage bill, 2009, aimed at replacing four existing laws on metal coins and tokens.

Flummoxed by its queer longevity, the committee headed by former finance minister Yashwant Sinha asked the ministry if the ordinance promulgated in 1940 was ever enacted as a law.

“No. The currency ordinance, 1940, was promulgated after passing of the India and Burma (Emergency provisions) Act, 1940, which provided that ordinances made during the period of the Emergency beginning June 27, 1940, (imposed to meet the exigencies of World War II) would not lapse within six months,” the ministry told the lawmakers’ panel.

“This made the currency ordinance, 1940 of permanent nature,” it said, adding that after Independence, the Indian government adopted it thorough a presidential order in 1950 to adopt various British laws.

An ordinance is a special piece of legislation made by the executive to meet an emergency when Parliament is not in session. But Article 123 of the Constitution stipulates that the ordinance will lapse unless it is ratified and made into a full-fledged law by Parliament within six months of its promulgation.

Asked by the panel as to why the ministry was not repealing it when it has stopped printing Re1 note, the ministry replied: “The 1940 ordinance may not be repealed as yet as one rupee notes continue to be in circulation though not being printed any more.”

The coinage bill, 2009, seeks to amalgamate four laws — Metal Tokens Act, 1889, Coinage Act, 1906, Bronze Coin (Legal Tender) Act, 1918, and the Small Coins (Offences) Act, 1971, into one comprehensive act.

So Coinage Act 2011 Section 28 says:

28. Continuance of existing coins

Notwithstanding the repeal of the enactments and the Ordinance specified in sub-section (1) of section 27,–

(a) all coins issued under the said enactments; and

(b) Government of India one rupee note issued under the Currency Ordinance, 1940 (Ord. IV of 1940), which are legal tender immediately before the commencement of the Coinage Act, 2011 shall be deemed to be the coin and continue to be legal tender in payment or on account under the corresponding provisions of this Act.

All this is so so fascinating.

History, law, currency, wars…there is a bit of everything in this. It is a pity we have not paid any attention to currency denominations in studying monetary economics. With the war on cash, much of this will be lost as well.

Seychelles demonetises its currency but there is enough time…

February 20, 2017

India has clearly set tall standards with its demonetisation exercise. The sheer volume of the exercise will always be tempting for governments worldwide.

Now Seychelles has decided to demonetise its notes. But the reason is very different. They has introduced new security notes earlier and just wanted to draw the older notes. Even times for withdrawal older notes is not three days as done by Indian government but the timeline is till 30 June 2017. Post 30 June 2017, the notes can only be exchanged with central bank (which hopefully will not go back on its promise):

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Is the banking industry undergoing a change or a transformation?

February 17, 2017

A nice speech by Mr Frank Elderson, Executive Director of the Netherlands Bank.

He nicely mixes the consulting/strategy talk with that of central banking:

Now, the banking industry is facing several challenges. Fintech is rising, consumer trust is damaged and Basel 3.5 is on the horizon. Then there is doubt about the future of Europe, growing criticism of globalisation and uncertainty about the geopolitical landscape. Meanwhile, the world is trying to achieve the Sustainable Development Goals and implement the Paris Agreement.  

Banks will have to adapt – perhaps contribute – to this and the question is how. What is an appropriate business model or strategy? And what is the best form for the key functions that banks perform, such as safeguarding money, providing loans, and determining risk and return? Or is there a future in which non-banking entities perform banking functions?

In discussing these questions, perhaps it’s worthwhile to distinguish between change and transformation. To me, change implies an increase or decrease over time of something while its nature remains constant. Money was first metal, then paper and now digital, but it’s still money. And today’s stock exchanges are in essence quite similar to those established centuries ago.

Transformation is different. It implies something essential changes and a new order emerges. A caterpillar transforming into a butterfly. A child transforming into an adult. Philips, as Hans de Jong so eloquently described it, transformed from a consumer tech company into a health tech one. Transformation takes time, vision and the courage to take tough decisions. And it is anything but easy to genuinely transform an organisation’s culture.

Having said that I wonder: is the banking industry changing or transforming? Perhaps both? I am sure this is something we can debate at our tables later on. For now, I would like to stress that transformation is not just an inspiring concept, but also a practical and operational process. People and organisations have a capacity to transform that can be nurtured. In today’s turbulent environment, banks would do well to evaluate this capacity. It could mean the difference between relevance and irrelevance.

Sums up the issue quite neatly indeed.

He then points to some lessons from the central bank on their work on pension funds:

DNB has conducted research into the capacity of pension funds to transform and we found several things I am sure apply to other industries.

For example, we found that leadership is key. Specifically, individual leaders with the capacity to identify changes in the landscape, develop best-case and worst-case scenarios and create a compelling vision. Also leaders who are able to develop a strategy around this vision and then execute it. The leadership team is of importance, too.

There needs to be openness, trust and diversity in terms of personalities and competences. We also found that pension funds need to be appropriately equipped.

They need to be agile, have an up-to-date IT infrastructure, have sufficient budget and task the right people with the transformation process. And pension funds need to have their house in order. For unless everything runs smoothly, the organisation will focus its attention on managing the present rather than designing the future.

Finally, we found that pension funds need to be proactive. If they wait until the environment forces them to change, they are at risk. Instead, they should proactively adapt. Some pension funds began to transition from a defined benefit to a defined contribution system years ago and they are now in a good shape. Those who haven’t, are struggling to adjust to changing realities. So transformation is a process that can be managed. But the process needs to lead to something. Transformation is a means, not an end. So what is or should be the end result of a bank or the whole banking industry transforming?

He says organisations should have a well-defined purpose (vision/mission?) and work towards their purpose. Netherlands central bank purpose is financial stability (as monetary function in hands of ECB):

De Nederlandsche Bank believes in the value of having a purpose and we cherish ours. We are in this world to contribute to the sustainable welfare of the Netherlands by promoting financial stability. Through this, we also contribute to the realisation of the Sustainable Development Goals. This inspires us and guides us in relating to our stakeholders. And it seems we are not alone in this. Last December, the Dutch Banking Association published a report in which it explored how banks can contribute to the Sustainable Development Goals. I wholeheartedly encourage such explorations.

Many issues simplified..

Zimbabwe’s new currency Bollars meeting same fate as Zimbabwe Dollars…

February 15, 2017

Interesting piece calling Mugabe as King of Funny Money.

The central bank recently introduced a new currency called bond notes which were called as Bollars. But old habits die hard:

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Ongoing battle in Central Bank of Barbados: Board of Directors vs. Governor

February 15, 2017

It is nice to be back to blogging after a short break.

One came across this interesting bit of battle in Central Bank of Barbados. The Board of Governors asked the Finance Minister to fire the current Governor Worrell. On being fired, Worrell used the Court to remain in job:

Minister of Finance Chris Sinckler, represented by Solicitor General Jennifer Edwards, will head to the High Court today to have a temporary injunction preventing him from firing Central Bank Governor Dr DeLisle Worrell lifted.

It is the latest development in a blow-up at the Central Bank which was exposed a week ago by the SUNDAY SUN in which it was revealed that the board of directors was no longer prepared to work with Worrell, who is the chairman.

The directors met with Sinckler days earlier and insisted that if Worrell was not terminated, they were prepared to step down.

Moreover, a major rift had also developed at the bank between the governor and his top management team who claimed he had not held management meetings for almost two years.

Meanwhile former Prime Minister Owen Arthur says Barba-dos is facing a serious financial crisis that must be resolved within the next 90 days in order to avoid a financial calamity. According to Arthur, that is the distinct possibility of the country running out of foreign reserves.

He said the weekend upheaval involving Central Bank Governor Worrell might give the country a chance to correct the disastrous financial policies pursued by the Government.

Arthur, a former Minister of Finance, told the DAILY NATION in New York on Monday that the bad policy of printing money had played a role in both the current crisis Barbados was facing and the Freundel Stuart administration’s move to oust the governor.

Well, well. Another evidence of what Central Bank Board can do
Further, there are economists asking Worrell to go as economy is bleeding:
Economist Ryan Straughn believes that Central Bank Governor Dr DeLisle Worrell is not the only one who deserves to lose his head for poor management of this country’s monetary and fiscal policy over the past seven years.
Speaking on radio here Monday morning in the wake of reports that Minister of Finance Chris Sinckler was demanding the Governor’s immediate resignation, the Opposition Barbados Labour Party (BLP) spokesman suggested that Sinckler should also be forced to step down given that the
Governor is a creature of the Minister of Finance who is ultimately responsible for the current instability of the Barbados dollar “I believe the Governor has embarrassed himself professionally and as a result of that he is now being embarrassed personally,” said Straughn, a former Central Bank employee. 
However, he highlighted Sections 47,48 and 49 of the Central Bank Act to show that “anytime any Governor believes that both the monetary policy and the fiscal policy run contrary to maintaining the fixed exchanged rate in Barbados, he has the responsibility to write the Minister of Finance and state specifically why he has come to such a conclusion and what are the remedies that need to be taken to rectify the situation”.
He was therefore adamant that the current threat of currency devaluation could not be pinned on Worrell alone, since Sinckler was a much as fault as the Governor for the recent money-printing binge. “What you are seeing manifested right now between Bay Street [the seat of Government] and Spry Street [the Central Bank] is just a symptom.
“I believe it is an attempt basically to hang the Governor out to dry [and] he would get no sympathy from me on that from a professional standpoint [since] I think he has done the country a disservice, because the Central Bank’s job is not to support Government, [it] is to protect the mandate of the fixed exchange rate. [But] it has been a willing participant in supporting the policies of the Government, which have led us to this position”, Straughn said.
He also suggested that Prime Minister Freundel Stuart must also share in the economic blame, while contending that the country lost $219 million in the
last three months of 2016.
Interesting case on ongoing issues in central banking.. 
PS:
This bit is also interesting:
Apart from the criticism over the Central Bank’s continued lending to the Government, regarded as the printing of money, Worrell has stopped holding press conferences for the past three years, choosing to only issue press releases and media programmes created by the bank with panellists hand-picked by the bank.

Central Banks are served by club of elite PhD economists and suffers from groupstink…

February 10, 2017

A former Dallas Fed employee has written a stinker of a book accusing Federal Reserve (applies to most central banks) for all kinds of things. The book is titled as: Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

The WSJ article provides a glimpse:

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Figuring the monetary policy toolkit of People’s Bank of China..

February 8, 2017

Interesting piece by Robin Ganguly pf Bloomberg.

He lists the various methods/tools used by PBOC to manage monetary policy from OMOs to X-Repos (identity not disclosed) ..

A review of tenure of New Zealand Central Bank Chief – Graeme Wheeler…

February 8, 2017

Yesterday, this blog had posted about how the end of tenure of NZ central bank chief and date of elections in the country are happening at the same time this year.

In the post, I had highlighted the Croaking Cassandra blog which is a goto blog on NZ economy.  It is so nice really to read blogs from different countries. The blog is run by Michael Reddel who worked in the central bank for  many years. One wished we had similar people writing in India too.

In a new post, Reddel looks at the tenure of Graeme Wheeler which is a decent read. Earlier we criticized central banks for not able to lower inflation. Now the criticism is for not able to increase inflation:

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Central Bank appointments and election cycle – Case of New Zealand

February 7, 2017

New Zealand’s election is scheduled to be held on 23 Sep 2017.

However, the central bank’s term is getting over on 26 Sep 2017 as well. This is of immediate interest to those studying political economy of central banking. After all, central banks are always blamed to be favoring either incumbent or opposition government. And to have the tenure of head of central bank clash with election dates is a pot boiler.

The best way to do handle the situation is to either give the current incumbent another term or extend the term of the chief by a few months till the political cycle is over.

What becomes interesting in NZ case is that the current chief Graeme Wheeler is not interested in any extension whatsoever. Thus, the government has announced the current Deputy Grant Spencer as the Acting Governor for 6 months.

Here is press release from Government and this one from Central Bank

Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of the Bank for six months, following the expiry of current Governor Graeme Wheeler’s term on September 26 this year.

“Mr Wheeler’s term as Governor expires on September 26, three days after the general election, and he has decided not to seek reappointment,” Mr Joyce says. “Following advice from the Cabinet Office and consultation with Cabinet, I have decided that the most appropriate course of action would be to appoint an acting Governor for a six month period to cover the post-election caretaker period. This will give the next Government time to make a decision on the appointment of a permanent Governor for the next five year term.

“I have decided to appoint Mr Spencer as acting Governor from 27 September 2017 to 26 March 2018, on the advice of the Reserve Bank Board of Directors. The Government is pleased to have someone of his calibre to move into the role. He is a highly experienced member of the Bank’s Leadership team who will provide stability and continuity through this caretaker period prior to the appointment of the new Governor.”

Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.

Mr Spencer has advised the Government that he won’t be applying for the permanent role, and intends to retire following his period as acting Governor.

The Bank has had one previous acting Governor. Former Deputy Governor Rod Carr was appointed in an acting capacity for the pre-election and caretaker period around the 2002 General election, following the resignation of Governor Brash.

Mr Joyce thanked Governor Wheeler for his service to the Bank.

“The Governor has performed his role calmly and expertly during a highly unusual period for the world economy. I thank him for his service up until now and for the remainder of his term as Governor,” Mr Joyce says.

Croaking Cassandra, a blog on NZ economy wonders about the proposal:

But there are other unanswered questions.  For example, is this a solution envisaged by the Act?     The only previous appointment of an Acting Governor was when Don Brash resigned to go into politics, and Rod Carr was appointed as acting Governor while the selection process for a permanent successor took place.  There is a clear need for acting Governor provisions in such cases –  Governor can resign, die, or otherwise become incapacitated (and can even be removed for cause by the Minster).

But here is the relevant statutory provision (section 48)

If the office of Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint—

(a) a director of the Bank; or
(b) an officer of the Bank; or
(c) any other person—

to act as Governor for a period not exceeding 6 months or for the remainder of the Governor’s term, whichever is less.

As I have read that section, it envisages an acting Governor to complete a Governor’s term. not to provide a temporary Governor when it is inconvenient to appoint a permanent one.

That interpretation seems consistent with two other aspects of the Act.  First, Governors must be appointed for an initial term of five years (although subsequent extensions can be for shorter terms).  Parliament made that choice deliberately, presumably to help emphasise that the Governor was to operate at arms-length from the government.  If, by contrast, an acting Governor could keep on being appointed for terms of six months at a time, it would allow the intent of the Act, operational autonomy, to be eroded if the government determined on such an approach, without coming back to Parliament to amend the law.

And second, the PTA provisions of the Act clearly tie in to the fixed term appointment of a Governor –  and in that context an acting Governor filling in for an unexpected vacancy (as Rod Carr was in 2002) simply carries on with the PTA the substantive Governor had had in place.  There is no provision in the Act for a PTA with an acting Governor –  and the existing PTA is personal to Wheeler, and expires with his term in September this year.

The key lesson is need to rethink through the central bank act:

More generally, it highlights again the desirability of a more throughgoing review of the governance provisions of the Reserve Bank Act.  That should not be a particularly partisan issue –  more like an opportunity for some sensible reflections and revisions in light of 27 years experience with the current framework, changes in the role of the Bank, changes in the governance of other core government agencies, and changes in the understanding of how mechanically (or not) monetary policy can be run (and monitored).

Hmm..

We in India are also waking up to the need to thoroughly understand the central bank act. There are just so many ways Governments can interpret the loopholes in the Act to serve their interests…

 

 

End of Fed Independence! House Financial Services Committee Sends Warning Letter to Yellen “This is Unacceptable”!

February 3, 2017

Prabhat sends me another link which is really explosive.

Yellen is sent this fuming letter by Patrick McHenry, the vice chairman of the House financial services committee:

The Trump team wasted no time in telling Fed Chair Janet Yellen what is and is not acceptable.

Patrick McHenry, the vice chairman of the House financial services committee, sent Yellen a letter of admonishment regarding international negotiations the Fed conducts in secret, with no oversight.

One line stands out: “This is unacceptable”. The preceding paragraph tears into the Fed’s secret negotiations with foreign bureaucrats, “without transparency, accountability, or the authority to do so.”

“I am writing regarding the Federal Reserve’s continued participation in international forums on financial regulation. Despite the clear message delivered by President Donald Trump in prioritizing America’s interest in international negotiations, it appears that the Federal Reserve continues negotiating international regulatory standards for financial institutions among global bureaucrats in foreign lands without transparency, accountability, or the authority to do so.”

Moreover, the letter seeks a comprehensive review of past agreements with the Financial Stability Board, Basel, and the International Association of Insurance Supervisors that “unfairly penalized the American financial system”.

The letter blasts “secretive structures” and “opaque decision-making” processes of the Fed. The letter then finishes with a final warning:

“It is incumbent upon all regulators to support the U.S. economy, and scrutinize, international agreements that are killing American jobs. Accordingly, the Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests.”

Wow, call that some direct attack on the central bank.

Though, this is so much better than what happens elsewhere where there are mere conspiracy theories. Here we clearly know what the agenda is and there is no room for any speculation..

RDX. RDX2, RDXF, SAM, QPM, ToTEM, LENS….are names of economic models used by Bank of Canada!

February 3, 2017

While reading this speech by Stephen Poloz chief of Bank of Canada, for a moment one thinks he/she is reading some scifi stuff. But such has been the state of economic modelling.

Infact the speaker starts with comparing economic forecasting to astronomy:

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Indian central bank cautions users of virtual currency..a monopoly worried?

February 2, 2017

It is all so ironical isn’t it?

On one hand the Indian central bank is pushing digital payments like never before:

Further, banks are urged to encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.

On the other it is asking to stop using virtual currencies. In a press release yesterday it said:

The Reserve Bank of India had cautioned the users, holders and traders of Virtual Currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to, vide its press release dated December 24, 2013.

The Reserve Bank of India advises that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.

Infact, it is the Indian central bank itself which has given rise to increase in these VCs. Any threat to people’s money leads them to search for alternatives and VC has emerged as one such alternative. The Cyprus crisis showed this as well.

 

The central bank had warned against using these virtual currencies earlier in 2013 as well but that time things were different. It was not pushing digital payments. The war on cash had not begun and there was little idea on what was about to happen in few years.

In 2013, RBI’s notice has more explanations against VCs:

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Ever wondered why the government is so powerful? It is due to their monopoly over currency..

February 2, 2017

Prabhat Singh explains how governments derive so much power due to their control over currency . He explains this uniquely via a question and answer session between two friends.

Superb bit. Couldn’t be a better way. It is a pity that even most economists do not get these basic ideas..

 

The other slient ban announced equally silently (European war on cash)….

February 1, 2017

As people write extensively on the US immigration ban, on the other side of Atlantic Europe also got in a ban act much silently. This European ban is on the new source of terror identified by the governments  – cash. The government’s War on cash is happening relentlessly.

Now Europe just announced a roadmap to limit cash usage across the continent.

Simon Black explains (HT: Good friend Prabhat):

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If Italy exits, how will it ease the Lira shortages?

January 31, 2017

JP Koning has a post on the issues with Italexit. He says whichever way look at, entering Euro is a one way street. Italy is a weak economy and its currency Lira will depict the weakness. The Italians shall always prefer to hold Euro leading to both currencies in circulation.

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What to trust on demonetisation: Official data or grim reports in media?

January 31, 2017

One was reading the Economic Survey chapter on demonetisation which as expected makes a rosy case of the exercise. Infact, this is the one of those rare instances when an official report has called the currency withdrawal exercise a demonetisation one.

Prof Arun Kumar looks at this puzzle. The official data/reports continue to show demon to be not as evil whereas there are media reports showing otherwise. Who to believe? He says (and rightly so), both sides need to wait for more data to come:

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Understanding the war on cash (Why, who and problems)?

January 30, 2017

A three essay series by Tony Joseph of Business World. He looks at the various political economy factors behind the digital cash drive. This go digital drive is hardly as rosy as it is presented to the masses. There are several players involved who are using governments to rush/push through policies to make that quick killing.

In the first essay he says:

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