Archive for the ‘Central Banks / Monetary Policy’ Category

The operation and demise of the Bretton Woods system: 1958 to 1971

April 26, 2017

Michael Bordo explains the BW system:

 He says key reason for breakdown was inflation in US:


Will Reserve Bank of New Zealand have dual objective like Fed? Inflation and employment?

April 18, 2017

How tides keep turning. Reserve Bank of NZ was the first bank to start inflation targeting formally in 1989. Since then, inflation targeting has become a huge buzzword across central banking circles with more and more central banks taking up targeting inflation.

Now the pioneer of inflation targeting could be made to reconsider and change its single mandate. If the Labour government comes to power in NZ, there are high chances that the RBNZ Act will be changed and employment will be added to the single objective.

The superb blog on NZ economy – Croaking Cassandra blog reports:

I’ve already written a bit about Labour proposals on monetary policy (here and here) and, for now at least, I don’t want to write anything more about the proposed changes to the decision-making process or the plan to require the Monetary Policy Committee to publish its minutes.  If there are all sorts of issues around the details of how, I haven’t seen anyone objecting to the notion of moving from a single decisionmaker model to a a legislated committee, or objecting to proposals to enhance the transparency of the Bank’s monetary policy.    The Bank was once a leader in some aspects of monetary policy transparency, but is now much more of a laggard.

Where there has been more sceptical comment is around Labour’s proposal to add full employment to the statutory monetary policy objective.    At present, section 8 of the Reserve Bank Act reads as follows:

The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices.

Responding to this aspect of Labour’s announcement hasn’t been made easier by the lack of any specificity: we don’t know (and they may not either) how Labour plans to phrase this statutory amendment.    There are some possible formulations that could really be quite damaging.  But there are others that would probably make little real difference to monetary policy decisionmaking quarter-to-quarter.  Probably each of us would prefer to know in advance what, specifically, Labour plans.  But this is politics, and I’m guessing that there is a range of interests Labour feels the need to manage.  In that climate, specificity might not serve their pre-election ends.  One could get rather precious on this point, but it is worth remembering that there are plenty of other things that may matter at least as much that we currently know little about.  Under current legislation, who becomes the Governor of the Reserve Bank matters quite a lot to shorter-term economic outcomes, and we have no idea who that will be.   The details of the PTA can matter too, and under the governments of both stripes the process leading up to the signing of new PTAs has been highly secretive (often even after the event).  For the moment, we probably just have to be content with the “direction of travel” Labour has outlined.

In some quarters, Labour’s plans for adding a full employment objective have been described as “cosmetic”, as if to describe them thus is to dismiss them.    That is probably a mistake.  When I went hunting, I found that cosmetics have been around for perhaps 5000 years (rather longer than central banks).   People keep spending scarce resources on them for, apparently, good reasons.     Why?  They can, as it were, accentuate the positive or eliminate the negative –  highlighting features the wearer wants to draw attention to, or covering up the unsightly or unwanted marks of ageing.    They (apparently) accomplish things for the wearer.


Further, in all NZ elections central bank objective has been a focal point:

What is the relevance of all this to monetary policy?  Well, there has been a long-running discontent with monetary policy in New Zealand, especially (but not exclusively) on the left.  In the 28 years since the Act was passed there has not yet been an election in which some reasonably significant party was not campaigning to change either the Act or the PTA.  We haven’t seen anything like it in other advanced countries.   Personally, I think much of the discontent has been wrongheaded or misplaced –  the real medium-term economic performance problems of New Zealand have little or nothing to do with the Reserve Bank –  and many of the solutions haven’t been much better (in the 1990s, eg, Labour was campaigning to change the target to a range of -1 to 3 per cent and NZ First wanted to target the inflation rates of our trading partners, whatever they were).     But that doesn’t change the fact that there has been discontent –  and more than is really desirable.

But what about the trade-off?

I’m quite clear that there is no long-run trade-off adverse trade-off between achieving and maintaining a moderate inflation rate (the sorts of inflation rates we’ve targeted since 1990) and unemployment.  And since something akin to general price stability generally helps the economy function better (clearer signals, fewer tax distortions etc) there is at least the possibility that maintaining stable price might help keep unemployment a little lower than otherwise.  Milton Friedman argued for that possibility.

But I don’t think that is really the issue here.

Because it is not as if there are no other possible connections between monetary policy and unemployment.   Pretty much every analyst and policymaker recognises that there can be short-term trade-offs between inflation and unemployment (or excesss capacity more generally –  but here I’m focusing on unemployment).   Those trade-offs aren’t always stable, even in the short-term, or predictable, but they are there.    Thus, getting inflation down in the 1980s and early 1990s involved a sharp, but temporary, increase in the unemployment rate.  That was all but inescapable.  And when the unemployment rate was extremely low in the years just prior to 2008, that went hand in hand with core inflation rising quite a bit.  Monetary policy decisions will typically have unemployment consequences.    Unelected technocrats are messing, pretty seriously, with the lives of ordinary people.   It is all in a good cause (and I mean that totally seriously with not a hint of irony intended) but the costs, and disruptions, are real –  and typically don’t fall on the policymaker (or his/her advisers).

And it isn’t as if monetary policymakers are typically oblivious to the pain.   There was plenty of gallows humour around the Reserve Bank in the disinflation years, a reflection of that unease.  And yet often the official rhetoric is all about inflation –  as if, in some sense, what look like relatively small fluctuations around a relatively low rate of inflation, matter more than lives disrupted by the scourge of unemployment.

So perhaps that is why cosmetics can matter, and serve useful ends even in areas like monetary policy.

Hmm..age old debates once again come to the surface when we were told they have been addressed. Inflation targeting was seen as the only thing that worked given NZ’s experiences. Now with pioneer considering changes, will it lead to change in thinking in other countries too?

There is little doubt that central banks though may just be targeting inflation but their actions have wide ramifications on the entire economy. This is particularly tricky in case of growth/employment issues which have to be answered by politicians. Thus, central banking is far more politicised than we imagine.

Interesting times. Who knows we could be going back to old central bank debates if we see so called cosmetic changes in RBNZ…

The CPI is a false guide for monetary policy…

April 18, 2017

Before being introduced to Austrian economics (too late, but better late than never), one just took economics ideas and concepts as given in textbooks. Macroeconomics textbooks were around two policies – fiscal policy and monetary policy. In monetary policy the main thing was inflation and in fiscal taxes and deficits. The way to measure inflation was consumer price index. A central bank’s main role was to keep inflation under control and for this CPI was the best measure. All these ideas were written in a manner which rarely made us question them.

This piece by Prof. Richard Ebeling questions the usage of CPI for monetary policy:


Ghana and Ukraine central bank chiefs resign for different reasons…

April 14, 2017

It is always interesting to track central bank appointments, firing and resignations.

In just a fortnight, we have seen two resignations.


What Explains Call Money Rate Spread in India?

April 11, 2017

RBI researchers – Sunil Kumar, Anand Prakash and Krishna M Kushawaha – look at the factors that explain call spread (spread = call rate – policy rate):

The study focuses on various drivers of overnight inter-bank rate spread under the new liquidity management framework during July 2013 to December 2016. Applying OLS with Newey-West estimator and various GARCH models to daily data, the study finds that liquidity conditions, viz., deficit, distribution and uncertainty impact the call money rate spread adversely. A moderation in the impact of liquidity uncertainty has, however, been noticed after the introduction of fine-tuning liquidity management operations in September 2014. Other factors, viz., the quarter-end phenomenon and structural changes in the liquidity management framework have also been found impacting the call money rate spread

The findings pretty much fit with understanding of call market players as well..

Ending the Federal Reserve: Top Down vs bottom up…

April 10, 2017

There are Fed dissenters who not just criticise policies but vouch for its closure. So far, we have known likes of Ron Paul who have tried to argue for the closure using the Federal Government route. However, there is  another approach in which US States use their constitutional powers to undermine the money issued by Fed. The first approach is called top down and second bottoms up.

William Greene, an advocate of second approach explains:

Since its inception, the U.S. Federal Reserve’s monetary policies have led to a decline of over 95% in the purchasing power of the U.S. dollar. As a result, there have been several attempts to curtail or eliminate the Federal Reserve’s powers (e.g., the efforts of Rep. Louis T. McFadden in the 1930s; the efforts of Rep. Wright Patman in the 1970s; the efforts of Rep. Henry Gonzalez in the 1990s; and the efforts of Rep. Ron Paul since the 1990s). However, none have proven successful to date, due mainly to the constraints of strong political opposition at the national level. In contrast to these “top‐down” attempts at the national level, this paper proposes an alternative approach to ending the Federal Reserve’s monopoly on money: the “Constitutional Tender Act,” a bill template that can be introduced in every state legislature in the nation, returning each of them to adherence to the U.S. Constitution’s “legal tender” provisions of Article I, Section 10.

This approach would have a greater likelihood of success for a number of reasons. First, it is decentralized: rather than facing concerted political opposition at a single Federal level, it attacks the issue at the State level, where strategies and tactics can be adapted to the types and amount of political opposition they encounter. Second, it is diffused: it can be attempted in any number of States, which can cause the opposition to spread its resources much more thinly than would be necessary at the Federal level. Finally, it is legally sound: it relies on the U.S. Constitution’s negative mandate in Article I, Section 10, that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” Therefore, in contrast to “top‐down” attempts to “end the Fed,” a “bottom‐up” approach using “constitutional tender” laws will find greater success.

He points how Top Down approaches have been vetoed by some or the other official from Federal Government.

US monetary history is quite different in many ways to other countries…

Richmond Fed President Jeff Lacker resigns over leaking sensitive Fed information…(brain fade moment?)

April 5, 2017

It was shocking to read this early morning. Richmond Fed President Lacker resigned over leaking sensitive information to a private player:


RBI Board clears proposal to introduce Rs. 200 notes: Another decision in secrecy?

April 4, 2017

There was a lot of criticism over the introduction of Rs 200o denomination. It was issued immediately after demonetising so called high notes of RS 500 and Rs 1000. Moreover, the velocity of Rs 2000 denomination is much lower and created further chaos. People said if at all, the RBI/ Government should have introduced smaller denomination notes like say Rs 200. This blog’s research also shows that this will be a totally new denomination just like Rs 2000. This has to be first approved by RBI Board and then the Government.

Perhaps taking a cue, RBI Board has cleared printing of Rs 200 note. Gopika Gopakumar of Mint reports:

The board of the Reserve Bank of India (RBI) has cleared a proposal to introduce banknotes of Rs200 denomination, two people aware of the development said.

The decision was taken at the RBI board meeting in March, these people said. They didn’t want to be identified as they aren’t authorized to speak to the media.

The process of printing the new Rs200 notes is likely to begin after June, once the government officially approves this new denomination, said one of the two people cited earlier.

However, there is one catch.

If this is true, then again we have a decision on new currency note taken in secrecy. A lot depends on the veracity of the news.

This time it is even a bigger secret as there was no Board meeting in March as per the website (select 2017 and then March in right menu). As per RBI Act, Section 13:


The upcoming RBI’s Monetary Policy Meeting: Just 20 minutes of media interaction?

April 4, 2017

It has been a tradition (not sure when it started) to have media interaction post monetary policy decision. Earlier, this was limited to Mumbai based media which was later expanded to others who could as questions over teleconferencing. It was interesting to see people from regional media ask questions. The idea was to reach out to as many as possible. Generally the time for such events have been around 45 mins to 1 hour .

But things have been changing recently. There has been some criticism/concern over RBI top management’s reluctance to interact with media post policy. It seems now only invitees are asked to attend the conference. The Economist  India head even raised over not being called for the conference second time around. Though, some commented it was nice to see likes of Doordarshan getting a chance to ask questions whereas earlier this was just dominated by either foreign press or Mumbai based financial media.

Later, there was an article reviewing 6 months of RBI’s New Governor titled as: Don’t Ask, Don’t Tell.  It is so much of a turn around since the hype generated when the appointment was done.

It seems RBI wishes to continue its policy of limited communications. In the forthcoming policy on 6 Apr 2016, media interaction is just for 20 minutes:


How did the DSGE name begin and become so important in world of macro/monetary economics ?

April 4, 2017

Beatrice Cherrier has a post on the topic.

According to JSTOR, it was Robert King and Charles Plosser who, in  their famous 1984 paper titled Real Business Cycles, used the term DSGE for the first time, though with a coma (their 1982 NBER draft did not contain the term): “Analysis of dynamic, stochastic general equilibrium models is a difficult task. One strategy for characterizing equilibrium prices and quantities is to study the planning problem for a representative agent,” they explained upon deriving equilibrium prices and quantities.

There is lot more in the post.

The profession is really poor with naming such terms/models. Most of the time these names just scare/intimidate you. One does not know whether that is the intended purpose as well.

When did Bombay takeover Calcutta as the prime financial centre of India? Some evidence..

March 29, 2017

For the current generation of scholars on finance and economics, this question would sound absurd. Competition between Calcutta and Bombay over financial centre? Really?

But Calcutta not just competed but even was much larger financial centre than Bombay. The older textbooks mention both Calcutta and Bombay as financial centres with Calcutta as First centre and Bombay as second financial centre. This is natural as Calcutta was the political and commercial capital of British. The first Presidency bank started in Calcutta in 1806 followed by Bombay nearly 34 years later in 1840 (the one in Madras was found in 1843). Bank of Bengal was much larger than Bank of Bombay for most part of Presidency bank history.

But Calcutta went through a lot of political turmoil in the 20th century which affected the city and its financial ranking. Bombay eventually took over the space of commerce and finance with Delhi taking the role of political centre. The question is when did Bombay eventually take over the financial space?


The Journey of Humankind: How Money Made Us Modern (National Geographic edition)

March 27, 2017

It is interesting when likes of National Geographic Channel discuss matters of money. They have a program as well on power of money for the human civilisation.

Civilization existed before money, but probably wouldn’t have gotten very far without it. Ancient humans’ invention of money was a revolutionary milestone. It helped to drive the development of civilization, by making it easier not just to buy and sell goods, but to pay workers in an increasing number of specialized trades—craftsmen, artists, merchants, and soldiers, to name a few. It also helped connect the world, by enabling traders to roam across continents and oceans to buy and sell goods, and investors to amass wealth…

Over the centuries, money continued to evolve in form and function. The ancient world’s stones and shells gave way to coins, and eventually to paper currency and checks drawn upon bank accounts. Those physical tokens, in turn, gradually are being superseded by electronic ones, ranging from credit card transactions to new forms of digital currency designed for transferring and amassing wealth on the Internet.

Nice pictures in the story as well…

1965: The Year the Fed and US President Lyndon Johnson clashed..

March 23, 2017

Nice piece by Helen Fessenden of Richmond Fed.

Few challenges to the Federal Reserve’s independence have ever matched the drama of Dec. 5, 1965. Fed Chairman William McChesney Martin Jr. had just convinced the Board of Governors to raise the discount rate amid signs that the economy was starting to overheat. Fiscal stimulus — increased spending on the Vietnam War, expanded domestic programs for President Lyndon Johnson’s “Great Society,” and a tax cut enacted in 1964 — had raised inflationary warning signals for Martin and, increasingly, a majority of the Federal Open Market Committee (FOMC). But Johnson was adamant that higher rates would slow down the economy and compromise his domestic agenda. Enraged, he called Martin and other top economic officials to his Texas ranch, where he was recovering from gallbladder surgery.

“You’ve got me in a position where you can run a rapier into me and you’ve done it,” charged Johnson, as recounted by Robert Bremner in Chairman of the Fed. “You took advantage of me and I just want you to know that’s a despicable thing to do.”

Johnson was accustomed to getting his way — whether through bluntness or sweet-talking, as the occasion might require. But not this time.

“I’ve never implied that I’m right and you’re wrong,” Martin said. “But I do have a very strong conviction that the Federal Reserve Act placed the responsibility for interest rates with the Federal Reserve Board. This is one of those few occasions where the Federal Reserve Board decision has to be final.”

Johnson finally relented, and Martin’s refusal to back down is often considered one his strongest moments as Fed chairman. His relationship with the president was sometimes strained in the following years. But the 1965 showdown was seen as a tough lesson to Johnson that the Fed would flex its muscles when needed to push back against the inflationary pressures caused, in part, by his administration’s own policies.

What is less often remembered in the popular mind is that the rate hike of 1965 did not, in fact, turn a corner on inflation. In the years that followed, fiscal stimulus was ample, war spending kept rising, and the deficit grew. But FOMC members were often divided, and their policy decisions reflected this ambivalence. Furthermore, while Martin saw monetary and fiscal policymakers as obligated to work together to promote price stability and growth, he discovered that dealing with this particular White House and Congress was often a one-way street. And even though the Fed was substantially upgrading its analytic capacity in the 1960s — hiring more Ph.D. economists, building up its research departments, and adopting forecasting — it didn’t always translate into consistent monetary policymaking.

Nice bit of history..

Denmark outsources minting coins to Finland

March 22, 2017

One fundamental question businesses face is: Should one produce or outsource?

Denmark has decided to outsource the minting coins to Finland.

The Mint of Finland has now begun to produce Danish coins. The coins will be put into circulation in Denmark later this year.“We chose the Mint of Finland after a transparent tender process and we are convinced that they will be able to meet our expectations,” says Governor Hugo Frey Jensen, Danmarks Nationalbank.

It was Hugo Frey Jensen himself who pressed the button to start production of Danish 20-krone coins during a visit to the Mint of Finland in the southern Finnish city of Vantaa. In the near future, the Mint of Finland will also start producing the other Danish coins. “Ever since the tender process, production of Danish coins has been a big and important task for us. We are proud to celebrate the start of production,” says Jonne Hankimaa, CEO of the Mint of Finland.

Although all Danish coins are now minted in Finland, their appearance has not changed. The only difference is that the year on the new coins is 2017.

Reasons? Falling demand of coins and banknotes has made the activity financially unviable:

Payment patterns have changed and demand for new banknotes and coins has been falling for a number of years. Hence it could not be justified financially to keep up an own production of banknotes and coins at Danmarks Nationalbank.

A tender process for production of Danish coins was initiated in December 2015 and a 4-year framework agreement was subsequently signed with the Mint of Finland.

No agreement has yet been concluded with a supplier of banknotes. Danmarks Nationalbank has just published a timeline for the forthcoming tender for banknotes, and a supplier is expected to be found in early 2018.


But the cost of printing and minting is hardly much especially given the seignorage, the State gets from this activity. Now, it seems Denmark has found it even cheaper to mint the coins via Finland (and print the currency later).

How central bankers see themselves as saviors, but not the cause of the instability at the first place

March 22, 2017

C Jay Engel posts based on a speech by Peter Praet of ECB:

ECB Executive Board member Peter Praet recently gave a speech in Brussels. The underlying theme captures the convenient positioning of world central banks. They want to be seen as saviors of collapsing financial markets, but neither the cause of the instability nor the continued struggle for economic growth. From the speech:

Faced with a prolonged crisis, the ECB’s unconventional policy measures have been essential to provide additional accommodation to the economy and prevent a self-sustaining fall in inflation — and they have been a clear success. Easier credit conditions have fed into a domestic demand-led recovery that has spread across countries and sectors. The economic outlook today is now better than it has been for many years.

And yet, as he admits, the ECB has been in crisis mode since 2008. So they want appreciation for bringing forth recovery, but want the world to look elsewhere for the reason why these economies aren’t self-sustainable. He even blames the crisis in the first place, not on central bank activity from 2000–2007 but on the masses themselves! 

The first [cause of the crisis] was the bout of over-optimistic expectations which took hold in several advanced economies in the pre-crisis years, reinforced in the euro area by a renewed sense of security and economic prosperity following the launch of monetary union. Despite slowing potential growth, agents in a number of economies overestimated their future income and borrowed against it, accumulating excessive debt. In some countries this over-leveraging was centred [sic] on firms, in other countries on households and in others still on the state.

Well, one might ask where this “excessive debt” came from. Does it not come from central bank policy? What Harry Browne once noted of governments equally applies to central banks: “Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk.'”

One of the consequences of living in an unfree world is the aggravating subjection to condescending Official Narratives. It’s not just that our Monetary Saviors get to make money supply and interest rates decisions on our behalf, it’s also that we are being saved from our own over exuberant actions. We ruin the economy, and then we get pulled from our own fires. And the bureaucrats hardly get a thank you.


Post Charolette Hogg Resignation: Thinking about senior central bank appointments

March 17, 2017

I had blogged about the recent case of Ms. Charolette Hogg who had to resign from Deputy Governorship of Bank of England. It is not any simple resignation with many lessons on central bank governorship. It should be discussed much widely.

CroakingCassandra  Blog, the goto blog on NZ economy and central banking issues thankfully has a post on the issue. He draws lessons for Reserve Bank of New Zealand and quite a bit applies to Reserve Bank of India as well (barring lack of female participation at top central bank roles. Unlike RBNZ, RBI has had females at the helm, though much more needs to be done.)


Lessons on Central Bank Governance from Charlotte Hogg, Deputy Governor of Bank of England who resigned…

March 15, 2017

It would have been least expected that one of the major issues which will trouble central banking is governance. How we keep seeing several such cases in recent years – NY Fed, Barbados Central Bank, India central bank and so on…

Now a new one has come up from the mother of central banking: Bank of England.  And this is a strange one.

Charlotte Hogg was a COO in the central bank for four years after many years in private sector. Based on her great track record, she was appointed Deputy Governor on 1 March 2017. But in just 14 days she has had to resign. Reason? She did not disclose her brother working at Braclays at the time of joining the Bank.

She says it was an honest mistake with no ill-intentions. But given a public job, there cannot be such mistakes and so she should resign:

Dear Mark and Anthony,

Last week I offered you my resignation in recognition of the fact that I made a mistake in not declaring my brother’s work on the forms that the Bank requires. It has become clear to me that I should now insist. As I have said, I am very sorry for that mistake. It was an honest mistake: I have made no secret of my brother’s job – indeed it was I who informed the Treasury Select Committee of it, before my hearing.

But I fully accept it was a mistake, made worse by the fact that my involvement in drafting the policy made it incumbent on me to get all my own declarations absolutely right. I also, in the course of a long hearing, unintentionally misled the committee as to whether I had filed my brother’s job on the correct forms at the Bank. I would like to repeat my apologies for that, and to make clear that the responsibility for all those errors is mine alone. I have not shared confidential information or misused it in any way. I do not have any financial relationship with my brother and I am utterly committed to the safeguarding of confidential information and the separation of a home and work life.

However, I recognise that being sorry is not enough. We, as public servants, should not merely meet but exceed the standards we expect of others. Failure to do so risks undermining the public’s trust in us, something we cannot let happen. Furthermore, my integrity has, I believe, never been questioned throughout my career. I cannot allow that to change now. I am therefore resigning from my position. I will, of course, work with you through any transition.

BoE accepted her resignation with deep regret.

Though what is more interesting is how she was grilled at the Parliament hearing:

At Ms Hogg’s appointment hearing on 28 February, the Committee asked about the interests declared in her questionnaire response, which included her statement, “my brother works for Barclays as a Director in Group Strategy”

Kit Malthouse: One final thing from me is that you have declared some conflicts of interest. Obviously you have family connections in the industry, so what measures have you agreed with the Bank to manage those?

Charlotte Hogg: My only connection at the moment, which you are referring to, is my brother, who is part of Barclays’ strategic planning group. He has been for a number of years. I do not discuss work with him and he does not discuss it with me. We mostly talk about his children. [ … ]

Chair: Let us go back to an answer you gave to Kit Malthouse a moment ago. You said that, with respect to conflicts of interest with your brother, you do not discuss business with him and that that should be enough to allay concern of any conflicts with your work on the PRC particularly, which has direct responsibility for regulating Barclays. Have you discussed the reply you just gave with the Governor?

Charlotte Hogg: I have always declared, from the moment I joined the Bank, all of my potential conflicts of interest. I would be more than happy to discuss it with Mark if he wants to. I am pretty sure he is aware of it. [ … ] Charlotte Hogg: [ … ] I am in compliance with all of our codes of conduct. I know that; I helped to write them.


Court confirmed that there were multiple opportunities when Ms Hogg could have declared her brother’s role: Helen Goodman: How many opportunities has she had to declare that her brother works at Barclays?

Anthony Habgood: When she joined, whenever she has attested to that code, which I guess we brought in 18 months ago or something like that, so probably two or three and she has not attested to that. [ … ]

Chair: [ … ] we went through several hoops when she first arrived in the Bank and then these two or three further opportunities to address this on a code that she herself had written. In evidence to us she said she knew she was compliant because she helped write the code. But it took parliamentary scrutiny and the requirements of parliamentary scrutiny to elicit a response that she should have given several years ago. It does not look good, does it, Mr Habgood?

Anthony Habgood: It does not look good. I agree with you—it does not look good. Chair: To use the phrase of Mr Fried, it does not look like leading by example, does it, Mr Habgood?

Anthony Habgood: It does not look like leading by example, no. Helen Goodman: There was the occasion when she took up her initial appointment. There were the annual attestations—there might be a couple of those—and then there was the application for the job.

The whole hearing document is a great read. Tells you how important central bank governance is against what quite a few believe in India.

Seeing all this drama in recent years, one realises how much stress we put on monetary policy framework, policy etc but so little on governance matters. Take for instance Indian central bank which is undergoing such a transition amidst huge hype. But the more important issues of governance and appointment matters remain under a wrap. It isn’t clear how various people are appointed on central bank (other regulators as well) nor we get to read about their discussion with government on matters. In Bank of England on the other hand, these things are common and central bankers are grilled for their decisions.

It was very rare when the media covered (got to cover?), Indian central bank head grilling over demonetisation. But noting much came out of it as it was just picked from sources. The thing should have been televised or transcript put for viewing later.

The so called best practices about running institutions is as much about governance as it is about policies. High time we focus on former as well..

RBI’s assessment of impact of demonetisation on Indian economy…

March 10, 2017

A big surprise from RBI as it has released its assessment of impact of demonetisation on Indian economy. All this while the stunning silence of the central bank has been so puzzling and irritating.

There is nothing much to note as much is already known via multiple news items and analysis. The most awaited data of how much old notes came back to the system is still not there (atleast I could not find it in the big document).

The report says important consequence is rise in digital transactions which was not even the original objective:

Demonetisation announced on November 8, 2016 was aimed at addressing corruption, black money, counterfeit currency and terror financing. Although demonetisation holds huge potential benefits in the medium to long-term, given the scale of operation, it was expected to cause transient disruption in economic activity. The analysis in this paper suggests that demonetisation has impacted various sectors of the economy in varying degrees; however, in the affected sectors, the adverse impact was transient and felt mainly in November and December 2016. The impact moderated significantly in January 2017 and dissipated by and large by mid-February, reflecting the fast pace of remonetisation. The latest CSO estimates suggest that the impact of demonetisation on GVA growth was modest.

Currency squeeze due to demonetisation along with seasonal factors pushed food inflation significantly down but has not had much impact on inflation excluding food and fuel. A surge in deposits led to a sharp expansion in the consolidated balance sheet of scheduled commercial banks and created large surplus liquidity conditions. These were managed by the Reserve Bank of India through a mix of conventional and unconventional policy instruments. There has not been any significant impact on the external sector. There has been a sharp increase in the number of accounts under the Pradhan Mantri Jan Dhan Yojana and the deposits in such accounts have also surged. Financial re-intermediation may have received a boost following demonetisation.

An important consequence of demonetisation has been the sharp increase in the use of digital transactions.

It has lots of statistics which could be used for future analysis provided we can trust these numbers…

By now, we all know the impact was never intended to be on economics. The real impact always was to unsettle India’s political  environment.  In a brilliant set of moves, the government has used demonetisation to build a narrative around corrupt and non-corrupt nd has used it well during recent elctions.

How Indian central bank got itself to be centre of Indian politics is quite something. The success/failure of demonetisation is more likely to reflect in election results and not as much in economic data..

Central Bank embrace of Blockchain is all about control

March 10, 2017

When you can’t fight them, join them.

C.Jay Engel writes about how Chinese central bank is embracing blockchain technology:


Ghana introduces QR code in its currency notes..

March 10, 2017

Another interesting update on currency note design via

To celebrate its 60th anniversary, CEntral Bank of Ghana has introduced a new 5 cedis note with a QR code. See page 13 of pdf…