Archive for the ‘Central Banks / Monetary Policy’ Category

100% gold standard vs fractional gold standard

November 27, 2017

An old piece written by Henry Hazlitt in 1979 who wrote the famous book: Economics in One Lesson.

He says we moved from a pure gold standard where money would be created backed by 100% gold reserves to a fractional one where only 50% or lower gold reserve was needed. This move to full backing to fractional backing sowed seeds for multiple monetary and financial crises:



Research on cash usage…

November 27, 2017

There are three research pieces looking at cash and other means to make payments.

First is this blogpost by  John Williams (President of San Francisco Fed) and Claire Wang. Second is this paper by ECN economists Henk Esselink and Lola Hernández on cash usage in Euroarea. Third is RBI Memo which looks at how non-cash transactions are rising across the country.

First the San Francisco Fed Blog says cash usage remains high and its death is widely exaggerated:


How to get rid of banking supervisors?

November 24, 2017

Central bankers are increasinly talking about culture, incentives etc. There have been two recent speeches which revisit these topics using bank supervision lens. First by Norman Chan of HKMA and second by Andreas Dombert of ECB.

Norman Chan of HKMA in this speech goes back to banking history when there were no banking supervisors:


When do people prefer to use coins and when they prefer to use cards for small payments?

November 23, 2017

Superb paper (minus all the modelling) in Bank of Canada series by Heng Chen, Kim P. Huynh and Oz Shy.

They look at this simple problem. When do people prefer to pay via notes/coins and when via card? When you expect to get a lot of coins in return you pay via card. If not, then via cash/coins:


50 years ago: When banks closed for two days in Pakistan following devaluation on 19-Nov-1967..

November 21, 2017

India devalued the Rupee in 1966 amidst fair bit of drama.

Pakistan followed in 1967 with its own set of drama:


When the definitive history of demonetisation is documented, RBI’s valiant defence of financial stability hopefully gets its due?

November 21, 2017

It is like when the kings force war onto its people and then saying look how well I defended you.

RBI Executive Director and MPC member Michael Patra in this speech reviews one year of RBI’s Monetary Policy Committee and comments:


Open your eyes to (the ills of) Federal Reserve

November 20, 2017

For a moment one thought this piece would have been written by an economist who was a follower Austrian School.

But it is written by Joel Thornton who is a businessman in Tallahassee. He says Federal Reserve is the “greatest business monopoly and swindle in the history”.


Bernanke, Geithner, Paulson to lead new project explaining decisions of financial crisis…

November 17, 2017

One does not know how to react to such research projects. When the chief actors during the 2008 crisis get to figure what was behind their very decisions:

Ten years after the onset of the worst financial crisis in generations, the first-person “we were there” accounts by the those who led the rescue have been published, journalistic accounts have been written—and even turned into made-for-TV movies—and the Financial Crisis Inquiry Commission has disbanded after publishing its report on the causes of the crisis.

But in one important respect the record is incomplete: There is no coherent and detailed explanation of the dozens of design decisions the first responders made as they crafted the many rescue and stabilization programs. Why, for instance, did the Federal Reserve conduct auctions for its Term Auction Facility on Mondays, but provide winning banks the cash on Thursdays instead of immediately? (So no one would conclude that a bank that borrowed this way was so desperate that it needed the cash to open the next morning.) More generally, what options were rejected and why? In hindsight, what worked as anticipated and what did not? Besides completing the historical record, answers to such questions may clear up some lingering controversies and may prove useful the next time the U.S. or any other country confronts a severe financial crisis.

To fill that gap, the Hutchins Center on Fiscal and Monetary Policy at Brookings has teamed up with the Yale Program on Financial Stability to commission papers from those who crafted the rescues in the Bush and Obama administrations and the Federal Reserve.

The project will be led by former Treasury secretaries Tim Geithner and Hank Paulson and former Fed Chair Ben Bernanke, and will culminate in the presenting of research at a Brookings conference close to the tenth anniversary of the crisis on September 11 and 12, 2018. The conference will end with reflections by Messrs. Bernanke, Geithner and Paulson. My colleague, J. Nellie Liang, Miriam K. Carliner Senior Fellow in Economic Studies at Brookings and former director of the Fed’s Division of Financial Stability, will serve as editor for the papers.

Scholars will be studying and writing about the causes and consequences of the global financial crisis and the Great Recession for decades to come.  We hope the unique nature of this project—the first-hand accounts by those who were in the trenches—will inform that work.

Looking forward to this…

A closer look at history of small denomination coins…

November 16, 2017

Nice post by Hillery York. It also has a picture of the Lydia coin, the first ever coin produced.


Great Depression research remains the holy grail..

November 15, 2017

Bernanke called Great Depression the holy grail of macroeconomics.  It is perhaps one of those few events despite being historical continues to inspire so much research after all these years. Books continue to be written and debated vigorously on the crisis .

Came across two recent posts in this regard:

  • David Glasner argues how Friedman was not the first to argue about France’s role in gold standard which eventually was one of the key reasons for the Depression to become global. Lots of history of monetary thought in the post.
  • In another post, Robert Murphy says Gold Standard was not responsible for Depression.

Phew…Keep breaking heads over it…

Why study and research numismatics?

November 14, 2017

Nice post by Hillery York, Jennifer Gloede, and Emily Pearce Seigerman:

Whenever we tell friends and family where we work, their first response is typically, “What is Numismatics?” Of course, they pronounce it anywhere from “numismatic” to “gnomimatic!” The National Numismatic Collection (NNC) is the Smithsonian’s collection of monetary and transactional objects. It houses approximately 1.6 million objects spanning thousands of years and a great variety of materials. One of the best parts of our jobs is getting to share the collection with the world! Numismatics is a far-reaching field, and we’ve found connections to military history, facial hair, woman suffrage, and even Game of Thrones! We often share things about our favorite objects, but here are a few large, notable collections that you may not know are housed within the NNC. We’re making these available online, and researchers are welcome to contact us regarding their research in these areas.

Greco-Roman Collection

Ancient coins have long been collected because of their beauty, age, history, and sometimes rarity. Even dating back to the Renaissance, aristocrats and royals sought to add ancient coins to their collections. It makes sense then that the NNC would also have an extensive collection of these fascinating coins donated by various collectors over the years. Scholars recently dove into the collection to assess its strengths as compared to other notable museum collections. In doing so, they created a detailed listingof the holdings and discovered the collection contains approximately 26,900 Greek and Roman coins! These coins offer a great opportunity to study economics, art history, ancient coin production, classics, and more.

Numismatics is simply fascinating . It should be part of teaching monetary economics as it tells you so much about the monetary history and even politics around it…

We should move beyond just assembling these coins and put them in a museum. The idea should be to research and figure why certain coins were changed/modified, introduction of new coins and so on. Central banks should sponsor research on numismatics as there is much more to research than the usual “download data and run models”…

New Zealand should try build a central bank which has an open culture (applies to other central banks too..)

November 14, 2017

The earlier speculation of including employment in RBNZ’s inflation targeting mandate has gained steam as the new government has come to power.

Michael Reddell who has been educating us about NZ economy via his super blog says best way is to build a central bank which focuses on building an open culture environment. It is really nice when we hear things like culture etc in central banking and banking contexts where until not very long ago only models mattered. NY Fed has also been talking a lot about culture these days.

Reddell points how each central bank has a different culture:


What is money? A sociological perspective..

November 13, 2017

An interesting piece (written in Jun-2017) dealing with many aspects of money (HT: EconomicSociology blog).

The article is based from a book edited by Nina Bandelj, Frederick F. Wherry & Viviana A. Zelizer.

Zelizer writes this piece:

If all money is the same, why do we call some dollars “dirty” — or even “blood money” — and others “honest”? Why is the money we earn as a salary often spent differently from a lottery winning? Why did we invent gift certificates rather than offer straight cash? Why do organizations construct elaborate compensation systems marking differences between salaries, bonuses, and perks? Why is it that a wife’s money is often spent differently from her husband’s?

Some of these questions are getting unexpected answers. In the past few decades, novel approaches to money have challenged conventional wisdom: money is not one thing but many things. It turns out that how the money is earned, by whom, what it is spent on, when, and for whom often matters as much as — or more than — how much money is involved in the transaction. At stake is not just the quantity of money, but its quality; and that quality is variable. Consider, for instance, the powerful democratic symbolism of the small sums of money donated to Bernie Sanders’s presidential campaign in 2016. Surely, not all dollars are equal.

What explains money’s multiplicity? Behavioral economics tells us that people keep track of their finances by creating discrete mental compartments for their various moneys: rent money is thus set apart from entertainment money, investment money, or charity money. Unexpected funds occupy a different cognitive space from a salary or other forms of routine income, even when the sums involved are identical. People are likely to spend such windfalls less cautiously and more rapidly.

But these intriguing psychological partitions only explain part of money’s variability. Sociologists go further by showing how all of us dispense different “kinds” of money to mark distinctions among our social relations: we tip a waiter but not our spouse, we may give our child a weekly allowance but rarely our grandfather, we pay our employee with a salary not a gift certificate (unless it’s Christmas). We all care deeply about such monetary distinctions: the wrong kind of money might sometimes amuse us but will more often shock or offend. Why? Because mistakes violate our expectations of how social relations should work. Imagine my (and the administration’s) shock if one of my students offered me a bonus as an incentive to teach a better class.

Always interesting to go beyond economics view of money…

Central Bank of Mauritius completes 50 years: A glimpse of its monetary and banking history…

November 8, 2017

The Central Bank of Mauritius completed 50 years recently and inaugurated a money museum named after their first Governor.

Th current chief Mr Rameswurlall Basant Roi gives a terrific speech on the occasion covering both monetary history of the region and the future with crypto currencies. Though, one has read some interesting speeches from previous Governor Bheenick as well

He points how  Mauritius had its own era of free banking:


In Ancient Greece, coins with the owl of Athena traded throughout the known world and beyond!

November 8, 2017

Interesting set of Tweets on JP Koning’s handle:

In Ancient Greece, coins with the owl of Athena were so common that the proverb Γλαῦκ’ Ἀθήναζε (an owl to Athens) was like coal to Newcastle..

Hmm..Didn’t know about this… Central bankers who claim to be owls (and neither hawks nor doves) have history backing them..
More on these coins here…Read, read and read..

Bundesbank to study the tricky history of German central banking during Nazi period…

November 8, 2017

Interesting bit and one is already looking forward to read the findings of this monetary history project:


A 154-year-old USD 5 banknote: It is believed to be the oldest US banknote still in existence

November 7, 2017

Interesting bit of news for currency historians:

A 154-year-old banknote with local roots is expected to be auctioned off for thousands of dollars next week..The $5 bill, which was processed in Richmond on Nov. 2, 1863 by First National Bank of Richmond, is believed to be the oldest banknote still in existence that was minted for an Indiana bank. It bears the serial number 1.

The currency is being auctioned through Stacks Bowers, a Santa Ana, Calif.-based auctioneer group specializing in historical currencies and has already received an online bid of $9,000. That figure could nearly triple by the time it’s sold at auction, Manning Garrett, director of paper money currency for the group, said.

Garrett said he expects the bill to bring anywhere from $15,000 to $25,000 or higher at auction Nov. 9, which will be held in Baltimore.

“It’s pretty exciting,” he said. “We see new discoveries occasionally from the 1920s or 1930s, but finds like this — from the height of the Civil War — you just don’t see stuff like that very often.”

 Jim Harlan, executive director of the Wayne County Historical Museum, is familiar with these bills with the Richmond origination and knows some Richmond residents who are collectors who would likely have an interest.

“They were definitely in circulation,” he said. “There’s some people in town that do collect those large size notes.”

Exciting indeed!

Meanwhile, BOJ’s Kuroda laughs off face-watchers trying to predict policy changes

November 3, 2017

I had pointed to ongoing research where researchers are trying to estimate future policy using changes in facial expressions of central bankers.  The researchers had studied BoJ’s Kuroda and figured some things.

Now Kuroda on hearing this, laughed off the idea (HT: MR blog):

On Tuesday, Kuroda suggested that the researchers could be easily outsmarted.

“I apologize to the people who are doing this research, but I really have no idea whether or not this is meaningful,” Kuroda said with a laugh at a press conference.

“If you try to decide something based on a specific indicator, people will behave in such a way that (your prediction) doesn’t happen. Then it simply becomes a game of cat and mouse.”


It is always a cat and mouse game between media/researchers and central bankers…

Bank recapitalisation bond plan: An attempt to hide failure of banking regulator?

November 2, 2017

Ila Patnaik writes a scathing piece on the recent Banking recapitalisation bond plan. She says the problem is not limited to public banks alone but even private ones which have hidden NPAs all the while. What was regulator doing all this while?


The evolution of the promises on India’s banknotes (1770 onwards)

October 31, 2017

JP Koning has another fascinating post on how the promises on the banknotes have changed over the years.

Taking a cue, I looked at India side of the story as well (Source: The Paper and the Promise written by Bazil Sheikh and Sandya Srinivasan). This is how it goes:


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