Archive for the ‘Central Banks / Monetary Policy’ Category

How ECB has turned the central bank seignorage model upside down?

June 27, 2016

Of all the noise around central banks. this blog just likes the discussions around central bank balance sheets. Learning about central bank balance sheets is perhaps all there is to monetary policy. But again it is hardly emphasised enough.

Daniel Gros has a superb piece on how  negative rates have impacted ECB balance sheet. Things have turned upside down actually. Traditionally central banks issue liabilities at near zerocost and earn on its assets which is usually investment in government bonds. With negative rates, ECB earns on its liabilities and distributes its earnings across the Eurozone via the national central banks. ECB has become more like an investment bank which uses leverage to earn interest on its assets.


Why Fed (and other central banks) have a diversity problem?

June 24, 2016

Mark Calabaria has a superb post. He points how Federal Reserve staff comes mainly from economics programs of selected universities in US:


When appointment processes of Indian cricket coach and central bank chief gets mixed up..

June 24, 2016

The brilliant Manasi Phadke has another brilliant post.

BCCI. The hunt for the next Indian coach is on. A special panel will be interviewing potential candidates telephonically.

It is interview day, not only at the BCCI, but also at the RBI. The PMO has asked some economists to telephonically outline their plans to a special panel. As fate would have it, the lines overlap.

What follows is a laugh riot. How Manasi keeps coming with these gems. Kudos..

A common central bank and finocracy tool to make one obey their orders : Fear Mongering

June 21, 2016

We were told all hells will break lose on Indian markets last Saturday. But nothing of this sort happened. It does not require a lot of economics education to realise that most investors do not have any other place to dump their money but India. But fears have to be raised as that is how central banks and its team of finocrats make us believe.

Tho Bishop has a piece on how central banks have been using the tool of fear mongering to push things their way: (more…)

Saving democracies from central bankers and finocracies…

June 20, 2016

Adam Smith in his Wealth of Nations tome said this on monopolies (pg 450):

This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

In today’s world, Prof Smith could just be replacing monopoly with central bank and monopolist with central bankers. He would be shocked to see what has been going on in the world of central banking. He could not write on this organisation as it had hardly come into the kind of form we know today. Otherwise he would have warned about it earlier  as well.


If Pate’s Grammar School sets UK Monetary Policy…

June 15, 2016

Each year, the Bank of England organises the Target 2.0 competition for A-level economics students.  This year  Pate’s Grammar School won the competition.

In this guest post on Bank’s blog  ( the winning team explains what they would do if they were at the MPC:

We decided as a team to hold Bank Rate at 0.5% and to maintain asset purchases at £375bn. In our view it is not yet time to tighten monetary policy. Though we believe the output gap is small, we feel the economy is yet to reach escape velocity and the Wicksellian natural rate is likely to stay low in the years ahead. We are more optimistic on potential supply than other economists and we think oil prices will stay low.

Escape velocity? Oh no! A level students should be using more economic terms so to speak.

Read the whole thing. It just reads like any other MPC statement. Not sure how should one react reading this.  Perhaps, the MPC can be replaced with these young guys. Based on their kind of analysis, one wonders whether you need the kind of army employed by Bank of England.

How are financial innovations regulated in India?

May 31, 2016

Very nice speech by R Gandhi of Indian Central Bank. It is a pity that such speeches are barely covered in media. All we care for is newsbytes and news that hardly matters other than create hype.

The speech is given in the context of recent developments in P2P lending space where India has decided to regulate the space. After looking at various ideas around financial regulation (which makes for a great read as well), the speaker talks about Indian approach:


Italy – historical heritage and future prospects

May 31, 2016

Nice speech by  Mr Salvatore Rossi, Senior Deputy Governor of the Bank of Italy.

He gives a brief outline of evolution of Italy as a nation and its contribution to world economy:


Should Cryptocurrencies be included in the forex reserves of Central Banks?

May 30, 2016

Interesting paper by Profs. Winston Moore and Jeremy Stephen of University of the West Indies (Cave Hill). They try and figure whether it made sense for Central Bank of Barbados to hold cryptocurrencies like bitcoin in their forex reserves. What they are trying to figure is would addition of these currencies lead to any benefits like lower volatility etc?

They say the impact would not have been much:


Greece in a monetary union: Lessons from 100 years of exchange rate experience, 1841-1939

May 17, 2016

Greece’s troubles on economic front are hardly anything new. They are as old as it gets.

Matthias Morys sums up the experiences of 100 years since 1841-1939.

Helicopters on a Leash…

May 10, 2016

The title reminds you of those war movies where suddenly due to some upcoming.ongoing catastrophe some leader (mostly US) says something like “time to act”. And the next scene is of helicopters and jets begin to make noises ready to fly and conquer the enemy/enemies.

However, the post is to do with central banks using helicopters to drop money. This is obviously the most discussed topic in global economy. Should one leash the helicopters? Adair Turner says time yes we should leash these helicopters on the dead economies:


Imagining a New Bretton Woods with old ideas of Keynes

May 6, 2016

Yanis Varoufakis looks at what Keynes missed pushing during Bretton Woods. This was of course the idea of a reserve currency Bancor and ensuring that global imbalances are a problem for both surplus and deficit countries.


Why bank deposits and currency in circulation have decoupled?

May 6, 2016

Arvind Subramanian, CEA has piece on one of the puzzles facing Indian economy – why bank deposits have lagged and currency in circulation increased? This blog looked at currency in circulation reasons here.

CEA says:


Central Bankers Gone Wild? A response from developed country central banker..

May 4, 2016

I had blogged about this article by Howard Davies saying central bankers have become too big for their own good.

Mojmír Hampl, Vice-Governor of the Czech National Bank responds to this criticism.

Sweeping criticisms of developed-country central banks have lately become all the rage. The main line of attack goes something like this: monetary policymakers have been far too activist since 2008, overstepping their mandates and damaging the economy. This narrative – which, bizarrely, is equally popular among otherwise irreconcilable ideological adversaries, such as libertarians and neo-Marxists – is patently wrong.

What the critics fail to understand is that modern central banks are responsible not just for fighting inflation, but for maintaining long-term price stability. Like a person’s body temperature, price levels can go neither too high nor too low without causing serious complications. Central banks must be as “activist” when combating deflation caused by weak demand as they are when fighting high inflation driven by excessively strong demand.

Though the battle is completely symmetric, the public assessment of it is bafflingly lopsided, especially in countries with financially conservative populations. This includes my own country, the Czech Republic, a nation of small savers where the loan-to-deposit ratio remains well below 100%. Czechs fear inflation, even though it hit a 13-year low last year and the Czech National Bank, of which I am Vice-Governor, has been fighting to avert the risk of deflation since 2013.

Another common complaint about developed-country central banks’ policies since 2008 is that they have redistributive effects. They certainly do, but so what? Any and all monetary-policy actions redistribute wealth. An interest-rate hike pleases savers, whereas a rate cut is a boon to borrowers. Importers prefer a strong exchange rate; exporters prefer a weak one. To make any sense at all, monetary policy must have different effects on different groups at different times. That is no mistake; it is the essence of monetary policy.

Some critics add that central banks are failing to hit their inflation targets anyway, so their activism is not only unwarranted, but also ineffective. Sometimes they even manage to fit these contradictory criticisms in the same sentence, as though they were accusing someone of firing blanks, but somehow leaving people dead and wounded.

The reality is that central banks in the developed world have – in a truly fascinating way – succeeded in maintaining price stability and the purchasing power of money during and after the global financial crisis. Had they not intervened, their economies would have faced catastrophic deflation, major asset-price slumps, and a complete meltdown of the financial and real sectors. Clearly, strong action was the right response to the crisis (the extent to which central banks might have contributed to its outbreak is another matter).

Each one to his own..

How central bankers have become too powerful for their own good?

April 29, 2016

Howard Davies points to an important problem facing the world – the power of central bankers. They have become way too powerful and important for not just their own good but everybody else’s as well:


Can crises be curbed? Hayek vs Keynes…

April 19, 2016

Today is a day of this versus this on ME blog. After Schumpeter vs Kirzner, here is another take on the more famous Hayek vs Keynes.

This one is by Norges Bank  Deputy Governor Jon Nicolaisen. As he is a central banker, what more to expect than whether one should intervene ot let markets work during a crisis:


Towards a theory of shadow money..

April 18, 2016

Those who think shadow money/banking is a new idea and came to the fore only in 2008 crisis, should know better.

Similar concerns arose when banks started offering deposits and one was not sure whether they should be counted as money or not. Over a period of time, deposits are not just counted as money but has become the most dominant form of money as well.  So will repos the new shadow banking instrument make the similar transition as well?

Daniela Gabor and Jakob Vestergaard of INET have a paper on the topic. A broad summary is here..


Do Harry Potter tales have lessons for central banking?

April 8, 2016

This blog pointed to this post linking Harry Porter to economics. It said Ministry of Magic was just antithetical to economic world where market exchange should allocate resources not some bureaucracy .

In a rebuttal on Mises Blog it says Potter world was not all that bad. It has some useful lessons for central bankers:


Why is currency in circulation in India rising?

April 4, 2016

There were flurry of articles towards end of India’s financial year on this murky term – currency in circulation. All these articles (article one , two and three)were looking at possible reasons for sharp rise of currency in circulation.

The question is why should anyone care? Well, one sees this circulation rising in times of high inflation as people need more money to settle transactions. But with declining inflation, one should not see a rise in the currency numbers.

First what is this Currency in circulation? This is basically all the paper notes we carry in our pockets. This along with rupee coins and small coins with RBI form currency in circulation. Rupee coins and small coins in the balance sheet of the Reserve Bank of India include ten-rupee coins issued since October 1969, two rupee-coins issued since November 1982 and five rupee coins issued since November 1985.

Next, what is the problem? See this table:


What if we all use Bitcoins ? Some Lessons from the Gold Standard

April 1, 2016

An interesting paper by Warren Weber of Bank of Canada.

It looks at what if this happens in future and then draws lessons from history! So say we all move to Bitvoins. What will it look like? Will it last? One could draw lessons from Gold Standard: