Archive for the ‘Central Banks / Monetary Policy’ Category

Future of cash in Switzerland is bright even as cashless payments become more important

September 6, 2019

SNB released a new CHF 100 note and its chief gave a speech.

He says cash and digital cash are complementary:

The digital transformation taking place in our economy is also affecting developments in the payments arena. As part of its statutory mandate, the SNB must not only ensure the supply and distribution of cash but also facilitate and secure the operation of cashless payment systems. A well-functioning payment system is critical for our economy.

Technological progress is also changing customers’ expectations and needs in terms of  cashless payments – for instance as regards speed and user-friendliness. In this area too, the SNB is a participant in innovation. Specifically, we are ensuring that Swiss Interbank Clearing (SIC) – our country’s powerful infrastructure for transacting cashless payments in Swiss francs – continues to work quickly and efficiently and thus remains as attractive as possible.

Promoting and ensuring both the supply of cash and the smooth functioning of cashless payments is no contradiction. The various payment methods satisfy the differing needs of our population. Our latest survey on payment methods, published in May 2018, showed that the public’s use of – and affinity for – cash remains high. It also confirmed that the Swiss population like to be given the choice between paying cashless or paying with notes and coins.

Banknote circulation in our country has increased steadily in recent years. Cash is used and valued for a variety of reasons, and not just out of habit or reluctance to adopt new technology. Cash can be used everywhere and is less dependent on technical infrastructure. Cashless payments are likely to become more important over time. I am nevertheless convinced that the future of cash, and thus of our new banknote series, is bright.



Federal funds rates based on the seven simple monetary policy rules

September 6, 2019

Cleveland Fed has put up a really good resource to forecast Fed Funds Rate across 7 mon pol rules.

Simple monetary policy rules typically provide a relationship between the central bank’s policy rate—which, for the United States, has been the federal funds rate target—and a relatively small number of indicators on real economic activity and inflation. Monetary policymakers often compare and contrast the federal funds rates implied by different simple monetary policy rules, use simple rules as an input in the decision-making process, and use simple rules to help communicate decisions to the public. (For one example, see here.)

Examining a variety of rules is helpful because there is no agreement in the research literature on a single “best” rule, and different rules can sometimes generate very different values for the federal funds rate, both for the present and for the future. Looking across multiple economic forecasts helps to capture some of the uncertainty surrounding the economic outlook and, by extension, monetary policy prospects.

We look at the federal funds rates coming from 7 simple rules.

    • Taylor (1993) rule
    • Core inflation in Taylor (1999) rule
    • Inertial rule
    • Alternative r* rule
    • Forward-looking rule
    • First-difference rule
    • Low weight on output gap rule

Forecasts for economic activity come from 3 sources.

    • Survey of Professional Forecasters
    • Congressional Budget Office
    • Cleveland Fed BVAR model

Really useful  for teaching as well..

Central Banking’s Bankrupt Narrative: Philips Curve

September 5, 2019

Roger Farmer of UCLA in this Proj Syndicate piece:

The standard theoretical narrative is based entirely on the Phillips curve, which asserts a direct tradeoff between inflation and unemployment. This is the narrative that determines what research is allowed into the top economic journals, and which discussions take place in policy meetings at central banks around the world. It is the narrative that informs how everyone from journalists and academics to the wider public interpret monetary-policy decisions. But it is a misleading narrative, one from which we must escape if we are to improve how we manage modern market economies.

To that end, it is not enough to criticize the Phillips curve. If the theory is wrong, it must be replaced with something better, and by something other than a return to 1950s Keynesianism, as today’s critics of neoclassical macroeconomic theory seem to propose. According to Summers and Stansbury, government should “promote demand through fiscal policies and other means” (emphasis mine). While I agree that monetary policy will be impotent when Europe or the US enters another recession, I am not convinced that government spending is the right response. My own research provides empirical evidence that recessions are caused by crashes in asset markets. As such, it is better to stabilize asset prices than build bridges to nowhere.

Modern market-based societies have pulled more human beings out of abject poverty than any other known form of economic organization. But “capitalism” is not some monolithic structure that exists in contradiction to “socialism.” There is a continuum of alternative economic arrangements, with laissez-faire at one end and central planning at the other. Our goal should be to design institutions that take maximum advantage of the market as a mechanism for coordinating information, while also providing the tracks on which the market runs.

Hoping Europeans will not be tempted by “treacherous promises of Facebook’s siren call” of Libra..

September 2, 2019

One of the hardest hitting speeches on Libra by Yves Mersch of the European Central Bank.

He starts quoting Madison:

In 1787, during the debates on adopting the US Constitution, James Madison stated that “[t]he circulation of confidence is better than the circulation of money”. It’s telling that Madison chose to use public trust in money as the yardstick for trust in public institutions – money and trust are as inextricably intertwined as money and the state. Money is an “indispensable social convention” that can only work if the public trusts in its stability and acceptability and, no less importantly, if the public has confidence in the resolve of its issuing authorities to stand behind it, in bad times as well as in good.

Madison’s 18th century remark on the link between money and trust has lost none of its relevance in the 21st century. The issue of trust in money has resurfaced in the public debate on privately issued, stateless currencies, such as bitcoin, and their promise to serve as reliable substitutes for public money. Today’s conference is neither the place nor the time for me to repeat my past statements on the shortcomings of cryptocurrencies[1] and why they do not fulfil the basic tests of what constitutes “money”.

Instead, I will today talk about Libra, Facebook’s newly announced private currency. It is scheduled for release in the first half of 2020 by the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from their handling of personal data on their social media platform.

He says there are 3 qs:

There are three key questions here. First, how does Libra differ from other private currencies and from public money? Second, what legal and regulatory challenges does it pose? And third, in the light of its mandate, what position should a central bank like the ECB take towards Libra?

The remainder of my speech will be dedicated to these three questions, not with a view to conclusively answering them, but merely to raise awareness of some of the risks of Libra, to question its main premises and, in the process, to highlight the perils of entrusting the smooth processing of payments, the savings of citizens and the stability of the global monetary and financial systems to unaccountable private entities with a questionable track record in matters of trust.

He thrashes Libra on all premises barring the innovations in brings towards payments. But that is something which ECB and other central banks can do without Libra:

In the context of the smooth operation of payment systems, the ECB takes a close interest in market innovations that seek to replace the euro with alternative settlement currencies or create new and autonomous payment channels. Although some of Libra’s aims are legitimate, reductions in cross-border fund transfer costs and other efficiency gains can also be obtained through established instant payment solutions. The Eurosystem recently launched the TARGET Instant Payment Settlement service, or TIPS – a pan-European, 24/7 settlement service for instant payments. By operating in central bank money, and by being embedded in TARGET2, TIPS provides a high-performance payment solution that is safer and more economical than questionable, market-based retail payment innovations.

At the end, he says money and state sovereignty are linked to each other. He obviously ignores the history of free banking where stateless money did exist and ran successfully too in places like Canada. He calls Facebook’s promises as treacherous which is a very strong criticism:

In the field of money, history bears testament to two basic truths. The first is that, because money is a public good, money and state sovereignty are inexorably linked. So the notion of stateless money is an aberration with no solid foundation in human experience. The second truth is that money can only inspire trust and fulfil its key socioeconomic functions if it is backed by an independent but accountable public institution which itself enjoys public trust and is not faced with the inevitable conflicts of interest of private institutions.

Of the various forms that money has taken throughout history, those that have best fulfilled their purpose and proven the most credible have invariably benefited from strong institutional backing. This backing guarantees that they are reliably available, that their value is stable and that they are widely accepted. Only an independent central bank with a strong mandate can provide the institutional backing necessary to issue reliable forms of money and rigorously preserve public trust in them. So private currencies have little or no prospect of establishing themselves as viable alternatives to centrally issued money that is accepted as legal tender.

The stance of central banks towards modern forms of money is bound to evolve with time, and central bankers have embraced technological developments in the field of money and will continue to explore helpful new innovations. But the rise of cryptocurrencies and other forms of privately issued instruments that can only fulfil some, but not all, of the functions of money is unlikely to fundamentally upset the two truths I just described. If anything, it will serve as a useful reminder of central banks’ pivotal role as responsible stewards of public trust in money, and stress the need for vigilance towards phenomena capable of undermining public trust in the financial system.

I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call.

Hmm..Central bankers hitting hard at cryptos not really reflecting on their own track record of money management…

Review of Jalan Committee: A case of both glass half-full and half-empty

August 29, 2019

After much wait and expectation, the Jalan Committee released its report. It was like watching the play Waiting for Godot.

My review of the key messages behind Jalan Committee in this piece on moneycontrol (fixed link).


As we know, the RBI gave a total surplus of Rs 1,76,051 crore to the Government of India (Government) comprising of Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions. It is the second portion of Rs 52637  Cr which is due to the recommendations of the Committee. This piece focuses on this excess provision only leaving the analysis of the first part for a future piece when RBI releases its annual report.

I do this piece rather differently starting with a primer on RBI balance sheet seeing how this reserve arises and then taking it forward from there.

Whither Central Banking?

August 27, 2019

Larry Summers whose tweets created quite a storm of late.

In Proj Syndicate Piece along with Anna Stansbury he writes central banks should realise their impotence in solving another crisis:

In an environment of secular stagnation in the developed economies, central bankers’ ingenuity in loosening monetary policy is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.


He says lower interest rates will not work this time around:

From a macro perspective, low interest rates promote leverage and asset bubbles by reducing borrowing costs and discount factors, and encouraging investors to reach for yield. Almost every account of the 2008 financial crisis assigns at least some role to the consequences of the very low interest rates that prevailed in the early 2000s. More broadly, students of bubbles, from the economic historian Charles Kindleberger onward, always emphasize the role of easy money and overly ample liquidity.

From a micro perspective, low rates undermine financial intermediaries’ health by reducing their profitability, impede the efficient allocation of capital by enabling even the weakest firms to meet debt-service obligations, and may also inhibit competition by favoring incumbent firms. There is something unhealthy about an economy in which corporations can profitably borrow and invest even if the project in question pays a zero return.

These considerations suggest that reducing interest rates may not be merely insufficient, but actually counterproductive, as a response to secular stagnation.

This formulation of the secular stagnation view is closely related to the economist Thomas Palley’s recent critique of “zero lower bound economics”: negative interest rates may not remedy Keynesian unemployment. More generally, in moving toward the secular stagnation view, we have come to agree with the point long stressed by writers in the post-Keynesian (or, perhaps more accurately, original Keynesian) tradition: the role of particular frictions and rigidities in underpinning economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.

If reducing rates will be insufficient or counterproductive, central bankers’ ingenuity in loosening monetary policy in an environment of secular stagnation is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.

Instead of more old New Keynesian economics, we hope, but do not expect, that this year’s gathering in Jackson Hole will bring forth a new Old Keynesian economics.



Israel as a safe haven for emerging markets..

August 27, 2019

Bank of Israel Governor at Jackson Hole conference reviewed the Israel economy. He points how it had become a safe haven of sorts due to its stability.

Israel is an interesting case study. We are a relatively strong small open economy that is obviously also influenced by external shocks. In Israel, for example, it was perceived during the nineties and early 2000’s that interest rates must be significantly higher than in the US, otherwise capital outflows would emerge followed by a depreciation and inflation. However, in this round, and in spite of having kept rates very low, Israel faced capital inflows following the US rate hikes, as it was perceived as an “emerging markets safe haven”, and appreciation pressures emerged—a marked change from past-patterns. This corresponds with the risk perspective that Sebnem Kalemli-Ozcan presented here earlier, as a spillover of the US monetary policy, and with Governor Carney’s speech emphasizing the importance of the sources of shocks to EMEs. This shift, which was only partially offset by a sustained accommodative monetary policy, reflects the structural change in the fundamentals of the Israeli economy, including the continuous expansion of employment; the current account surpluses; the decline in the debt-to-GDP ratio since the Fiscal Stabilization program in 2003.

The strong fundamentals of Israel’s economy manifest themselves in financial markets, and are intimately related to the perceived absolute and relative resilience of the economy. Figure 2 is taken from Du And Schreger’s (2016) paper on “Local Currency Sovereign Risk”, which introduces a new measure of emerging market sovereign credit risk, and compares the development of sovereign risk in a few emerging markets between 2005 and 2014. It shows that Israel’s sovereign credit risk is low, with exceptionally low variance compared to the other countries—emphasizing the “safe haven” status within emerging and even advanced economies.


Economic, Fiscal and Financial Governance in the Euro Area

August 26, 2019

Jean Claude Trichet, former chief of European Central Bank reviews the experiences so far in Euro area.

He says we need to be a bit more patient with Euroarea. It s hardly as bad as people make it out to be:

1. Contrary to many negative predictions, the euro, as a currency, is a remarkable success in terms of credibility, stability and resilience. This resilience is due, in particular, to a large popular support.
2. The euro area is more of a success in terms of real growth measured during the period starting from its inception until today. But the appreciation must be more nuanced as regards nominal and real convergence inside the single currency area.
3. In a medium- and long-term perspective, EMU calls for further significant reinforcing its economic, fiscal and financial governance.
4. Drawing a number of lessons from the crisis, the ECB actively participated in what I call “conceptual convergence” of policy making in advanced economies’ central banks.

Overall, the success of the euro and of the euro area in terms of credibility,resilience, flexibility, popular support and real growth during its first 20 years is
impressive. It justifies reasonable optimism as regards the long-term success of this unique, ambitious, historic endeavor of the Europeans.

To consolidate this long-term success, a lot of hard work remains to be done as is always the case when a bold historic endeavor is in the making. The single market with a single currency of the U.S. was not  achieved in a short span of time. Neither in 20 years, nor even in 40 years! From the Coinage Act of 1792 to the Federal Reserve Act of 1913, there is a maturing process of around 120 years. And since the issuance of the first federal note in 1914 and today, an
additional period of 105 years.

Review of Jackson Hole Conference 2019: Are central bankers staring at a bigger hole for economies?

August 26, 2019

The annual Jackson Hole Conference for the year 2019 was held over the weekend. The theme this year was Challenges for Monetary Policy. In 1999 there was a similar theme of New Challenges for Monetary Policy.

Here is my piece reviewing the key speeches and papers in the event. There could not be a more trying time for central banks and select economists to chalk think about economic growth and development.

A new museum in Paris is all about money

August 23, 2019

DW profiles the new money museum in Paris.

They say money makes the world go around, and apparently, it also makes for a good museum: The “Cité de l’économie et de la monnaie” “(which translates as city of economy and money) is a new museum which opened this summer in Paris. Called Citéco for short, it’s appropriately located in the central building of the Banque de France.

While the setting of the museum could hardly be more dignified­­ — a castle-like villa built by the banker Émile in the late 19th century — its content is playful. Excerpts from Charlie Chaplin’s 1915 short film The Bank flicker in the former vault. A work of art by the French artist Christian Champin welcomes the visitors: Djibrila, a cow sculpture made of metal waste, is intended to point out the problem of overproduction around the globe.

While one might imagine a museum about economics to be a bit dull, in fact, the opposite is true. Citéco boasts more than 50 videos and 20 video games, as well as photographs and sculptures in its collection. There’s even an eye-catching one-meter-high sculpture made of hundreds of feathers, pearls, shells and coins, which at some point served as a means of payment. The museum aims to prove that a complex economic history can be explained in an original and playful way.


CRR and SLR as macroprudential tools: Some Historical Lessons

August 22, 2019

Nice paper by Eric Monnet (Banque de France) and Miklos Vari (IMF):

Liquidity regulations similar the current Basel III Liquidity Coverage Ratio (LCR) have been used from the 1930s to the 1980s in many countries as monetary policy tools. They took the form of required deposits at the central bank (“cash reserve requirements”) or minimum holdings of liquid securities (“securities reserve requirements”). As with the LCR, these two types of liquidity requirements (cash and securities) were computed as a percentage of short-term deposits.

India obviously had Cash Reserve Ratio since 1935 and SLR since 1949 and continues to have both these ratios.

Our paper presents three contributions.

First, based on detailed readings of historical central banks’ reports and documents, we describe how and why liquidity ratios were used in many
countries (especially Europe) from the 1930s to the 1980s , following the American experience. By emphasizing the distinction between “securities-reserve requirements” and “cash-reserve requirements,” we provide details on central bank practices whose history is largely unknown, and shed light on the dual nature of liquidity ratios as prudential and monetary policy tools.

Second, we show how “securities reserve requirements” were at the crossroad of monetary policy and sovereign debt management. It explains why they were phased out by central banks in the 1980s, as they had been associated with the so-called “financial repression” era (Reinhart and Sbrancia (2015)). Securities-reserve requirements were typically used in a period when banks held a large share of government bonds, and they reinforced such phenomenon. Central banks increased liquidity ratios during times of restrictive monetary policy in order to prevent banks from selling government securities, which were the main type of assets eligible to fulfill the requirement. As such, banks were discouraged to shift their assets from government securities to corporate loans.

Third, we build a theoretical model, and show that the mechanisms previously described can be rationalized with a simple model of the interbank market. By this, our paper introduces a new mechanism in the current literature on liquidity regulation and sheds new light on the history of monetary policy.

Hmm. Even without CRR and SLR, RBI has been using macropru policies much before they became buzzword. See these 2010 speeches by Shyamala Gopinath of RBI and James Caruna of BIS. 

SLR in particular has long been seen as a villain and something which led to financial repression. Several RBI Governors and other officials have written to either remove SLR or bring it to zero. Similar story was played in West too but much earlier than RBI.

Price stability or financial stability? Central Bank’s (and RBI’s) difficult balancing act

August 21, 2019

My new article in moneycontrol where I reflect on the recent speech by the Governor of RBI.

Price Stability and Financial Stability continue to pose challenges for central banks throughout their history…

How banks lobby and capture regulations..

August 21, 2019

Superb paper by Deniz O Igan and Thomas Lambert:

In this paper, we discuss whether and how bank lobbying can lead to regulatory capture and have real consequences through an overview of the motivations behind bank lobbying and of recent empirical evidence on the subject. Overall, the findings are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. This in turn allows riskier practices and worse economic outcomes.

The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis.

While these findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks. Enhanced transparency of regulatory decisions as well as strenghtened checks and balances within the decision-making process would go in this direction.

I think in other sectors regulatory capture is not as straight forward. In financial sector it is blatant. You see central bankers and securities regulators join financial firms pretty freely.

Philippines economy: Weaving an unprecedented 20 year growth story (without much hype)

August 21, 2019

There is much hype around Indian economy and how high its growth has been all these years. There are some others who manage it without much hype.

Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (their central bank) in this speech highlights how Philippines economy has been growing for 20 years:

Let me begin with our growth story thus far in the Philippines. Our economy has experienced uninterrupted growth for over 20 years since 1999 despite challenges such as the 2004 fiscal crisis and the 2007 global financial crisis-that is 81 consecutive quarters of continuous growth, with annual growth averaging 6.4 percent in the past five years (2014-2018).

Growth in recent years has become more broad-based.

On the demand side,  private consumption remained robust in the first quarter of 2019, as in the previous quarters through the years. This is further supported by rising contribution from investments from 2010 up to present.

On the supply side, services remain the main driver of growth-but the industry sector has also stepped up in recent years.

Meanwhile, the government’s economic managers remain optimistic about achieving our GDP growth target of 6 to 7 percent this year despite the lower than expected 5.6 percent growth in the first quarter of this 2019.

Private consumption is expected to remain robust, aided by remittance inflows and sustained “cooling” inflation. Private capital formation, on the other hand, should likewise contribute more significantly to economic growth, with construction and investments in durable equipment expected to remain solid in light of the government’s projects and other infrastructure programs.

The International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) share these expectations. In fact, all three forecast that the Philippine economy will grow by about 6.2 to 6.5 percent this year.

This has been due to three measures:

The bold reforms and initiatives in the past three years have prompted the government to capitalize on and sustain these gains. It is because of this that we believe the Philippine growth momentum will be sustained moving forward.

First is the government’s ambitious infrastructure program-“Build, Build, Build” which aims to boost the economy’s mobility and connectivity, enabling equitable growth and development. At present, there are 75 high-impact national government infrastructure, with 46 projects (61 percent) already in the implementation stage. 

The government is expected to invest over PhP 4.6 trillion (or US$90 billion at PhP52:USD1) in public infrastructure from 2019 to 2022.

Second, is the recent passage of reforms aimed at strengthening our investment climate. The Ease of Doing Business and Efficient Government Service Delivery Act, the revised Corporation Code, and the Philippine Innovation Act support the government’s agenda of improving competitiveness and ease of doing business in the country, promoting transparency and cutting red tape in the government for a more conducive business environment.

At present, the Philippines’ current standing has improved based on different third-party assessors. For instance, the Philippines’ ranking rose from 68th to 56th place under the 2018 Global Competitiveness Report.

It also received an upgrade in its sovereign credit rating from Standard & Poor’s to “BBB+” from “BBB.” These favorable standings are also boosted by the improved business sentiment and the stable consumer outlook based on the BSP’s latest round of expectations surveys.  

Finally, the continued demand for Philippine skills locally and abroad are evident in the growth of our BPO industry and strong remittance inflows. This further highlights the importance of our country’s most prized resource-our labor force. Based on our estimates, production efficiency has improved over the years with the incremental capital-output ratio (ICOR) declining steadily. As you know, the higher the ICOR, the less efficient the production process is.

Recognizing the skills of our workforce, the government has invested heavily in various social programs such as the Universal Health Care Act and the Access to Quality Tertiary Education Act (RA No. 10931).

You may not know this but 40% of our budget goes to social services.

He goes on to highlight the role central bank has played and is playing to maintain the momentum.

India and its policymakers make much noise about how growth rates have been higher during their tenure and getting into a lot of mud slinging. They make it look as if India is the only country growing and they are the sole reasons for this growth. Examples from smaller countries such as Philippines tells us none of this is needed really.

Central Bank independence vs Central bank accountability to society: Why Czechs have preferred low inflation?

August 20, 2019

Nice speech by Mojmír Hampl, former Vice Governor of Czech National Bank. He says central bank independence is more than just codifying it in law. The central bankers have to act independently and be accountable to society they serve.


What drives Trump to nominate Judy Shelton at Federal Reserve? Try push countries towards Fixed exchange rates?

August 19, 2019

All kinds of things happening.

Barry Eichengreen writes that Trump wishes to go back to the earlier days when exchange rates were fixed. Why? The idea is to compress US Trade deficit by raising tariffs. However,  other countries allow currencies to depreciate netting out the effects of tariff. This means countries should be pushed to fix their exchange rates which leads to nomination of Judy Shelton who is a major votary of gold standard:


Central Bank of Iceland vs Iceland’s largest fishing exporter: Case of lost reputation

August 16, 2019

Central banks are embroiled in all kinds of things.

Iceland government imposed capital controls in 2008 crisis with central bank incharge of their enforcement.

Jon Danielsson of London School of Economics in this article points how things went wrong for the central bank:


Network Analysis of NEFT Transactions in India

August 16, 2019

Shashi Kant and Sarat Chandra Dhal of RBI in Aug-2019 Bulletin article do network analysis of NEFT transactions in India:

Since the global crisis in 2008, network models have emerged as a tool for analysis of interbank financial exposures. The recent literature has accordingly emphasised the role of network analysis of interbank payment transactions in complementing the existing framework for financial stability analysis (Caccioli et al., 2018). Where central banks are the operators of payment and settlement infrastructure, as in India, a comparative advantage is that it is relatively easier to acquire clean, structured and accurate data that are crucial for network analysis.

Surprisingly, therefore, there has been little research on the interconnectedness of participating entities in the payment system in India. The motivation for
this study is to bridge this gap as a first attempt in the Indian context. We use the National Electronic Fund Transfer (NEFT) system as a case study. Operated by the Reserve Bank of India (RBI), it is India’s largest payment system by volume and a game changer in the retail payments sphere.

We examine the network topology of the NEFT system and analyse financial interconnectedness using network metrics of centrality. Using bilateral transaction information for each participating institution aggregated for March and April months of 2019, we build a network graph depicting the linkages. We use these data to explore the connections between various groups of banks in order to identify patterns. We also seek prominent players in the payment network in order of their systemic importance using a non-parametric methodology (Jaramillio et al., 2014). 

In summary, our findings show that out of the public sector, private sector and foreign banks that constitute around 83 per cent and 87 per cent of the
total transactions by value on NEFT in the month of March and April respectively, the flow from private sector to public sector banks is very large, with public
sector banks being net receivers in the system. We also present evidence of strong connections between public and public sector, and between private sector
banks, nascent role of co-operative banks and newly established payment banks in NEFT. 

Lots of amazing pictures of networks..

Monetary transmission in Australia: Fairly efficient even at lower interest rates

August 16, 2019

Australian central bank has cut policy rates in June and July meetings by 25 bps. The policy rate is at 1% currently.

In this speech, Christopher Kent, Assistant Governor (Financial Markets) speaks about how interest rates are being lowered everywhere including Australia. The transmission in Aus has been quite efficient with most %age of rate cuts passed on to people:


Turkey central bank fires its chief economist and other departmental heads

August 13, 2019

Central bankers continue to be under pressure and be ousted from their job. An Indian parliamentarian openly says he had asked the Finance Minister to sack RBI Governor without naming the person. He says the “RBI Governor was no good and should be sacked outright.”

However, the government anger on central bank is not limited to Governor or Deputy Governor. It could be hit at the central bank staff too. After all the staff was advising the senior team.

This is what we are learning from Turkey.

They just fired the the Governor, but were not happy. They have even dismissed its chief economist and several other departmental heads:


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